This report analyzes the Supreme Court appeal concerning a dispute between the Hong Kong and Shanghai Banking Corporation Limited (“Respondent”) and Pratap Shyam Sunder Singh (“Appellant”). The case revolves around a housing loan agreement, default on repayment, and claims of negligence and breach of duty of care. SC (C.H.C.) Appeal No. 62/2012

Key Facts

1. Loan Agreement:
   • The Respondent extended a housing loan of Rs. 18,200,000 to the Appellant on May 23, 2006. The terms included repayment over 180 months at an interest rate of 13.90%.
   • The loan facilitated the purchase of property at 18/9, Chitra Lane, Colombo 05, which the Appellant subsequently mortgaged to the Respondent as security.
2. Default:
   • The Appellant paid five installments before defaulting on the loan.
3. Claims by the Appellant:
   • The Appellant alleged a failure of consideration due to purported defects in the title to the property purchased.
   • Additionally, a claim-in-reconvention sought Rs. 50 million for damages, alleging negligence and breach of duty of care by the Respondent.
4. High Court Decision:
   • The Commercial High Court ruled in favor of the Respondent, rejecting the Appellant’s claim-in-reconvention.

Issues for Determination

1. Was there a total failure of consideration in the housing loan transaction?
2. Did the Respondent owe and breach a duty of care toward the Appellant?

Analysis

1. Failure of Consideration

Under English law, a failure of consideration is determined by whether the party alleging it received any part of the benefit for which the payment was made.

• Appellant’s Argument:
  • Claimed that no valid title passed to him due to the Respondent’s negligence.
  • Asserted that this constituted a failure of consideration.
• Court’s Findings:
  • The Respondent fulfilled its contractual obligation by disbursing the loan amount. The Appellant used these funds to purchase the property.
  • The alleged failure of title, even if proven, does not negate the fact that the Appellant received the loan. Therefore, no failure of consideration occurred.

2. Breach of Duty of Care

For a duty of care to exist in tort, the defendant must assume responsibility for advising or ensuring specific outcomes.

• Appellant’s Argument:
  • The Respondent undertook to advise on the title and ensure it was defect-free, thus assuming a duty of care.
• Court’s Findings:
  • There was no express contractual obligation for the Respondent to ensure valid title.
  • The Appellant, aware of the dual role of the Respondent’s legal advisors, consented to their involvement without seeking independent legal advice.
  • The evidence did not support the claim that the Respondent assumed responsibility for verifying the title beyond securing its interests as a lender.

Conclusion

The Supreme Court upheld the High Court’s decision, concluding:

1. There was no failure of consideration as the loan was disbursed and used as intended.
2. The Respondent did not owe or breach a duty of care concerning the title’s validity.

Recommendations

• For Borrowers: Conduct independent legal checks on property titles and avoid over-reliance on lenders for verification.
• For Lenders: Clearly delineate the scope of services provided to avoid disputes related to advisory obligations.
• For Legal Practitioners: Emphasize the importance of informed consent when acting for multiple parties in a transaction.

This judgment reinforces the necessity for clarity in contractual relationships and the distinction between a lender’s obligations and those of independent legal advisors.