B2/2000/0451 
Neutral Citation Number: [2002] EWCA Civ 1344
IN THE SUPREME COURT OF JUDICATURE 
CIVIL DIVISION 
ON APPEAL FROM ABERYSTWYTH COUNTY COURT
(His Honour Judge Moseley QC) 
The Royal Courts of Justice
The Strand
London

Monday 29 July 2002 
Before:

LORD JUSTICE SIMON BROWN 
Vice President of the Court of Appeal, Civil Division 

LORD JUSTICE MANCE

LORD JUSTICE LATHAM 

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Between: 
STEVEN HENRY RICKARDS
MARLENE RICKARDS 
Claimants/Appellants 
and: 
(1) RUSSELL JONES 
(2) JOHN DYER  
(3) MALDWYN WATTS 
Defendants/Respondents 
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Transcript prepared from the Steno Notes
of Smith Bernal Reporting Limited
190 Fleet Street  London EC4A 2HD
Tel:  0207 404 1400
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MR B THOMAS (instructed by Colin Taylor, Bingham House, Penore, Cardigan) appeared on behalf of the Appellants
MR M POOLES QC (instructed by Morgan Cole, Bradley Court, Park Place, Cardiff) appeared on behalf of the Respondents
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JUDGMENT
Monday 29 July 2002 
1.	LORD JUSTICE MANCE: The facts of this case have been set out fully in the judgment which I gave on this appeal on 13 October 2000, and I need not repeat them. By that judgment Smith J and I adjourned this appeal in the hope that it could be resolved by mediation involving the National House-Building Council (“the NHBC”) as well as the parties to the appeal. 
2.	Despite fears to the contrary expressed by Mr Pooles QC, who represents the respondent defendants, the NHBC did participate in such a process. Unfortunately, however, the mediation did not lead to any settlement of the matter. Further, the appellants have had great difficulties in obtaining and maintaining legal assistance. There has in the circumstances been considerable delay, despite frequent attempts to have the matter relisted earlier, in relisting this appeal. The position now is, happily, that since the middle of this month the appellants have been again in receipt of legal assistance and Mr Thomas, who appeared on the previous hearing and below, represents them today.
3.	We have heard submissions by Mr Pooles not only on the points mentioned as outstanding in the judgment which was given on 13 October, but also upon a development of those points on which Smith J and I invited submissions by a letter dated 17 August 2001, which I set out as follows:
“The National House-Building Council ('NHBC') scheme states that it provides interim cover (set out in Part B section 1 and Part C section 1) as soon as an Acceptance Form is received by the NHBC, and the purchaser only becomes entitled to the cover set out in the rest of the booklet after the issue of the Ten Year Notice. That in turn will only be issued once the Home has been completed: see CA Bundle page 103. The Builder is required to build the Home in accordance with the NHBC's Requirements: see page 105, which goes on to provide that 'This work will be subject to the NHBC's system of inspection and he must earn the NHBC's Ten Year Notice'. A Ten Year Certificate might, it appears, be made subject to exclusions: see page 115.
The house was completed (although the water and electricity had not been connected). The Britannia Building Society's offer dated 6th July 1993 provided as set out in the judgment dated 13th October 1993.
On the face of it, the Respondent solicitors could have expected and should have obtained not merely an offer from NHBC, but the Ten Year Notice itself. Even if the non-availability of this notice might have been explicable on the basis that the house had only recently been completed (cf page 102A, advising purchasers to ask their solicitor 'if the Ten Year Notice is not received within a few weeks after the Home has been completed'), the importance of the Ten Year Notice is so great under the scheme that it might be suggested that any solicitor should check what the position was regarding it and should obtain confirmation that it would be forthcoming before completion.
Had such a check been made, or such confirmation sought, here, one may presume that the NHBC would have drawn attention to Mr Rogers' lack of continuing registration (cf paragraph 24 of the judgment dated 13th October 2000).”
4.	In barest outline, for present purposes the following appear to me the salient features of the circumstances: 
5.	(1) The claimants (now the appellants) instructed the defendants as their solicitors in April 1993, well in advance, in relation to a proposed purchase from a Mr Davies and Mrs Rogers of a plot of land for £10,000 and from Mr Rogers, as builder, of a house to be built on that plot for £30,250. 
6.	(2) To make these purchases the claimants required a mortgage and both they and the mortgagee, the Britannia Building Society, required the house to enjoy the benefit of NHBC protection. The first claimant, Mr Rickards, is in fact in the building trade himself and had some understanding of the virtues, or supposed virtues, of such protection. The building society's instructions to the defendants included this provision:
“THE NHBC SCHEME 
9. Where the property is new or less than 10 years old please ensure that a NHBC agreement was entered into at the time of construction and that the benefit of the 10 year Protection Certificate will pass to the borrower and that the certificate is with the title deeds.”
7.	(3) Although no relevant distinction appears, hitherto, to have been drawn between the defendants' duties to the claimants and to the building society hitherto, Mr Pooles submits that their interests are not necessarily the same and there may be obligations to one which are not obligations to the other. However, I note that paragraph 1.2.1 in the Law Society's Conveyancing Handbook, of which an extract has been put before us provides:
“The buyer's solicitor should ensure that the contract .... complies with any conditions required by the buyer's mortgagee ... “ 
8.	Where a matter as important as obtaining NHBC cover is involved, I would have thought that if a building society, as proposed mortgagee, introduces a condition such as clause 9 then, in the interests of ensuring the provision of the mortgage to the satisfaction of the mortgagee, it would be the duty of the buyer's solicitors to comply with that condition. 
9.	(4) The scheme of NHBC cover (which was set out in greater detail in my judgment dated 13 October 2000) is that the NHBC (which is a body set up by builder members, as I understand it) issues offers which those builder members, and possibly some others authorised by the NHBC, may pass on to purchasers of properties constructed or under construction. Each such offer identifies the builder and his membership number and a”Buildmark number” for the particular construction project. It is, judging by the present offer, an undated document addressed via the builder to the purchaser's solicitors, who are requested to accept by filling in a form and returning the same to the NHBC “before legal completion”. As soon as such an acceptance reaches NHBC, cover is stated to be available under part B section 1 and part C section 1 of the NHBC's booklet (“the NHBC's basic cover”). The purchaser only becomes entitled to the cover set out in the rest of that booklet after issue of a Ten Year Notice, which the NHBC will only issue “when the house is finished” or “when the Home has been completed” (“Ten Year cover”). Although part C section 1 affords some cover prior to completion, it is in terms only cover against “loss because the Builder fails due to his insolvency or fraud to complete your Home in accordance with the NHBC's Requirements”, and it is specifically limited to “a maximum of £10,000, or if greater, 10% of the original agreed price of the Home.” Mr Pooles submits that the rationale of that limitation is that, at least in the ordinary course, the house would physically be completed before any legal completion. 
10.	(5) In the present case the house was physically completed by the buyer at some date before 14 July 1993. The fact that water and electricity had not been connected as at that date, or as at the date of completion, does not affect this. There was in fact an unusually short gap between exchange of contracts on 14 July 1993 and legal completion on 16 July 1993 since the claimants were keen to move in. 
11.	(6) The defendants received the NHBC documentation from the builder/vendor's solicitors on 16 July 1993 under cover of a letter dated 15 July 1993 which enclosed in addition the documentation required for legal completion. 
12.	(7) The defendants completed their purchase on 16 July 1993 on behalf of the claimants, without doing anything with the NHBC documentation or taking any step to ensure that NHBC cover was in place or, therefore, obtaining any Ten Year Certificate; or, indeed, advising either the claimants or the building society of these failures. As appears from his evidence, Mr Jones, the solicitor who handled the matter, had only the vaguest idea what was involved in, or in accepting, NHBC cover. Only on 22 September 1993 did Mr Jones send off an “acceptance” of NHBC cover to NHBC, to be informed immediately on 27 September 1993 that the builder, Mr Rogers, had ceased to be a member of the NHBC on 26 March 1993, after the NHBC had issued the documentation to him, and that he was not authorised to pass it on to any purchaser after 26 March 1993. The NHBC added, by letter dated 3 December 1993, that Mr Rogers had been informed accordingly by registered letter after the cessation of his membership. 
13.	(8) The house built and sold by Mr Rogers proved a disaster for the claimants. Defects in its construction made it effectively worthless. Mr Rogers is now insolvent and the NHBC has refused to indemnify the claimants, who have brought the present proceedings against the defendants. 
14.	(9) The defendants have never alleged that the NHBC was on risk. On the contrary, after some prevarication and delay the defendants ultimately did inform their clients by letter of 14 October 1996 about the NHBC's attitude. They did so, the evidence shows, in terms confirming that no NHBC cover applied. Even two years later, the Solicitors Indemnity Fund, by letter dated 20 October 1998, was taking the same attitude. Indeed, for the purposes of that letter, but without any admission for the purposes of proceedings, the Solicitors Indemnity Fund did not dispute at that stage that the defendants should have checked that the builder was still registered with the NHBC and therefore able to procure the NHBC cover which the builder had, in replies to pre-contract enquiries, said would be available.
15.	The defendants' pleaded defence is equally lacking in any suggestion that the NHBC was on risk, that being a suggestion which, as Mr Pooles acknowledged at the previous hearing in this appeal and continues to acknowledge now, would have required to be pleaded. In those circumstances it is not open to the defendants to assert that cover was not dependent upon continuing membership by the builder of the NHBC.
16.	The pleaded defence has simply been that the defendants took due care, by seeking and obtaining confirmation from the vendor's/builder's solicitor in pre-contract enquiries, to ensure that the house would have the benefit of NHBC cover and that NHBC papers would be delivered, as they were, on exchange of contracts. However, at the trial before His Honour Judge Moseley, it appears that, although the defendants were not allowed to allege that the NHBC was bound, they were allowed to assert that they reasonably believed that the NHBC was bound. As to the problem that Mr Jones had not even filled in or sent off the NHBC's acceptance prior to completion, the defendants alleged that, even if he had done so, this would not have revealed the absence of cover prior to legal completion. The defendants also alleged at trial that even in the absence of NHBC cover (flowing from Mr Rogers' loss of NHBC membership) the claimants, if they had known of that absence, were so keen to buy the house from Mr Rogers that they would have completed in any event. This last allegation was without merit, as was held by the judge below and as pointed out in paragraph 16 of my judgment of 13 October 1993. The claimants would not have been so stupid, even if, implausibly, their building society would have allowed them to be.
17.	The defendants in this case were clearly negligent, at least in not filling in and despatching the NHBC documentation; but, if that was the full extent of their duty, then there is some plausibility in their argument that its performance, which could not have been undertaken before the day of completion, would have left the claimants no better off. Normally the gap between exchange of contracts and legal completion would be likely to give time for the NHBC to respond, and for any problem about the existence or terms of cover to be mentioned in correspondence. Bearing in mind that that clearly was not the position here, the question is: should the defendants have taken further steps to confirm the existence of basic NHBC cover, or even Ten Year cover, before legal completion, if necessary giving the claimants advice not to complete until this had been done? One must assume, in view of the importance to the claimants and the building society of NHBC cover, that if advice to postpone completion had been given to the claimants they would have accepted it, despite their keenness otherwise to complete.
18.	The starting-point for determination of this appeal is, in my view, that the NHBC was not at risk unless the builder, Mr Rogers, remained a member of the NHBC at the time when the NHBC offer was passed on. The contrary is, as I have said, not pleaded, has never been suggested, and was not open to the defendants. That is so whatever arguments they might now, with hindsight, wish that they had advanced, based on considerations of ostensible authority. One can have little doubt that if the defendants in late 1996, or the Solicitors Indemnity Fund at some subsequent date, or the defendants in their pleading, had asserted that the NHBC was liable, matters would have proceeded very differently from the way they have.
19.	Accordingly, it cannot be open to the defendants to assert that the NHBC documentation held out Mr Rogers as having authority to pass on the NHBC documentation even after his membership ceased, since if that was its effect, the NHBC would have been bound. That is an allegation which the defendants have not advanced and were not permitted to advance. Nor, in my judgment, can the defendants assert that they reasonably read the documentation in these circumstances as holding Mr Rogers out, since once they accept (as they have done) that the documentation did not in law hold him out, I cannot see how they can at the same time say it was reasonable for them to come to an opposite conclusion, either by reference to its terms or as a matter of the general law.
20.	As a matter of fact, it is also clear from the defendants' pleading, as well as from Mr Jones' witness statement and oral evidence, that this whole argument depends on hindsight. At the time, Mr Jones did not pay any attention to the NHBC documentation at all. He did not read it, or conclude from it that Mr Rogers had authority to pass it on at all. On the contrary, he simply, and in my view negligently, assumed that all was in order because the builder/vendor's solicitors had told him that NHBC cover would be provided, and a bundle of documentation calling itself such arrived at his office under cover of the letter of 15 July 1993.
21.	In these circumstances, therefore, where the defence have accepted as a matter of law that Mr Rogers' authority to pass on the documentation depended upon whether or not he continued to be an NHBC member, it seems to me that the only conclusion at which we can arrive is that it was incumbent on the defendants to contact the NHBC to confirm, at the least, Mr Rogers' continuing membership and authority, and so to confirm that NHBC cover would validly come into existence after they filled in and returned the relevant form. They could have done that quite easily by telephoning the number which appeared on the documentation. Had they done so, they would undoubtedly have discovered the true position regarding Mr Rogers' cessation of membership and authority and the claimants could not and would not have completed the purchase, and would not have suffered the loss which they have. I would therefore allow this appeal on this ground alone. 
22.	It seems to me probable, however, that there is an alternative and narrower basis on which the appeal should also be allowed. In the present case, the house had been completed by the time of exchange of contracts as well as legal completion. There was no obvious reason, therefore, why the NHBC should not have issued, if it had not already issued, its Ten Year Notice or Certificate straight away, at least if Mr Rogers was authorised to pass on the documentation. This was a case where NHBC cover was of obvious importance to the purchasers and to the building society. The building society's instructions specifically called, as I have said, for the Ten Year Certificate to be put with the title deeds. 
23.	It may be that those instructions are more apt in a situation of a subsequent purchase. Nonetheless, in terms, they are capable of applying to precisely the present situation and of being operated in it. There are some differences between the potential scope of the basic cover and the scope of Ten Year cover. Mr Pooles argued that those would be immaterial in reality, but the fact is that the building society sought the Ten Year Protection Certificate, which is, once issued, a concrete assurance of cover; and that legal completion prior to its issue exposes the client and the building society to a different situation from that which is contemplated by the building society's instructions and to a situation where it is always possible that some impediment to the issue of a Ten Year Certificate may exist. 
24.	In my view, it was in the circumstances of this case, therefore, probably incumbent on the defendants to contact the NHBC prior to completion in any event, so as to obtain the Ten Year Notice, or at least to confirm that it would be issued. They did not do this either. Again, had they done so, they would no doubt have discovered the true position regarding Mr Rogers' membership and the claimants would not have completed the purchase or suffered the loss they have. So in my view, although this alternative ground is not essential for the resolution of this appeal, it is probably also a good ground.
25.	I would end by stressing that this is a case which we resolve, and can only resolve, on the particular basis on which it has been contested. That, as I have said, is that the validity and worth of an NHBC document depends upon continuing membership, there never having been any suggestion to the contrary by the defendants. 
26.	For those reasons, I would allow this appeal. 
27.	LORD JUSTICE LATHAM: I agree.
28.	LORD JUSTICE SIMON BROWN: The central argument which Mr Pooles QC seeks to advance before us is that a reasonably competent solicitor could properly have regarded the NHBC as being bound by its documentation to provide the relevant cover under the agreement. His problem is that the stronger the case he makes to this effect, the clearer it becomes that what he is really saying, and must say, is that the NHBC is indeed liable, notwithstanding that the builder was no longer one of its members when the transaction took place.
29.	In my judgment, however, that is an argument which is simply not open to the respondents here. Never, prior to the hearing below, did they so much as hint at the possibility that the NHBC was not entitled to reject liability under this agreement. On the contrary, they appear to have accepted the NHBC's repudiation of liability by its letter of 8 August 1996 without demur; and yet more striking are the terms of the Solicitors Indemnity Fund's letter of 20 October 1998, refusing to meet the appellant's claim:
“For present purposes, but without any admission for the purpose of proceedings, I am not disputing that the indemnified should have checked that the builder was still registered with NHBC and therefore able to procure the NHBC cover which he said in replies to pre-contract enquiries would be available. The problem with this claim from your clients' point of view is that he was not registered and, whatever the indemnified might have done, the one result which they could never have achieved was NHBC cover on this property.”
30.	The letter then postulates that the appellants should have been advised that cover was not in fact available but continues:
“If one avoids using any element of hindsight when assessing the risk of the builder breaching his obligations and becoming insolvent, I would find it hard to accept that your clients would have done anything other than proceed with the purchase. If that is correct then they would have been in the same position as they are in now. 
If your clients choose to issue proceedings, they will have to give evidence on what they would have done in those circumstances .... ”
31.	It is perfectly plain, as I understand the findings of the judge below, that the appellants would certainly not have completed this purchase had they in fact been warned that NHBC cover was not available to them.
32.	If a respectable case arose for the appellants to pursue their claim against NHBC under the agreement, then, plainly, they should have been advised to this effect by the respondents, and, no less plainly, the respondents, once the action was brought against them, should have raised such a contention. As I have explained, an altogether different and, indeed, entirely inconsistent defence was advanced.
33.	In my judgment, the respondents here are in a dilemma. Either NHBC was liable under its documentation or it was not. If it was not -- if, in short, it properly could repudiate liability, as it did -- then the risk of that is apparent on the documentation and it is a risk which no reasonable solicitor could properly have failed to recognise and guard his client, and indeed his mortgagee clients, against. If, however, NHBC was liable, then the respondents had to make an affirmative case to that effect and, having failed to do so, they cannot now be heard to raise it. 
34.	I too would allow this appeal.
ORDER: Appeal allowed, the appellants being awarded judgment for damages to be assessed. The appellants to have their costs below, in the Court of Appeal and of mediation, to be subject to detailed assessment at this stage.
(Order not part of approved judgment)