Mortgage: Both law firms deceived by imposter
A judge has refused a lender’s application for summary judgment against a law firm in a case involving an “imposter who appears to have fraudulently deceived” both of them.
Rejecting too the alternative of striking out the defence, Master Pester in the Chancery Division said that not only was there a real issue to be tried on the construction of undertakings given by Essex, Suffolk and London firm Attwells but he did not believe that quantum could be summarily determined.
He was told the parties agreed there had likely been an identity fraud when an imposter borrowed money from short-term bridging finance specialist Social Money (SoMo), having instructed Attwells to act as his solicitors.
Master Pester said there was “no suggestion that Attwells or any of the legal professionals working there, or indeed any of the other legal professionals instructed on the relevant transaction, had any knowledge that the borrower was anyone other than who he claimed to be at the time”.
The imposter pretended to be a Linford Gayle, owner of two London properties. SoMo offered to lend him £775,000 in March 2022.
“Several communications” between Attwells and SoMo’s solicitors, Manchester firm JMW turned on the “provision of satisfactory confirmation of the borrower’s identity”.
Phillip Hewett, a solicitor at Attwells, met the borrower to execute the documents. He also completed SoMo’s certificate of satisfaction, confirming he was satisfied that the person who signed the documents was the stated borrower and owner of the properties, and the signatures were genuine.
Nicholas Attwell, on behalf of Attwells, gave SoMo undertakings to, among other things, redeem an existing charge on one of the properties and register a new charge against both of them.
Meanwhile, JMW asked Attwells to obtain further certification of the identity documents by an independent professional, which was carried out by a solicitor from Harrison Morgan Solicitors.
A net advance of just over £700,000 was sent to Attwells, with JMW paying off the charge. It paid the money into “a bank account in the name of the borrower” and made the applications to the Land Registry.
Master Pester said it only “gradually became clear” that the borrower was an imposter, when “the real Mr Gayle” contacted Attwells to ask why his mortgage had been redeemed.
SoMo’s application was limited to the points which it argued were suitable for summary disposal, namely breach of contractual undertaking and breach of trust. Other issues, such as damages for breach of warranty of authority and/or breach of warranty, were unaffected.
SoMo argued that the claim for breach of undertaking was “very simple”, in that if the money was “not used for the purposes of the transaction (as defined in the letter of undertaking) then Attwells were in breach of the undertakings”.
However, Master Pester said that although Attwells “may well face difficulties at trial”, the case it put forward on construction of the undertakings was “properly arguable and has a real as opposed to fanciful chance of succeeding”.
It was “at least conceivable” that further disclosure may support one or other party’s suggested construction of the undertakings. This meant the matter “should not be disposed of pending proper disclosure from all the parties”.
Even if he was wrong on this, he did not believe that quantum could be summarily determined.
An indication that the “current balance outstanding to SoMo under its own loan” was over £1.6m exclusive of costs was “a startling increase from the original sum advanced”.
Quantum was “a matter which ought to go to trial or at least to a further hearing”.
There was also “a real issue to be tried” on whether Attwells, in paying the monies to its client, was in breach of trust.
The master accepted the proposition that Attwells held the money on trust but said that, before declaring a breach of trust, it was necessary to determine the terms of that trust, which were to be found in the undertakings.
“Attwells say that if there were a trust of the monies advanced when first received by it, then its terms were only to use the advance for the purpose of a loan to SoMo’s borrower and Attwells’ client, and those terms were fulfilled.
“The terms of the undertakings supply the terms of the trust. This is a matter which should go to trial.”
The ruling said Attwells has commenced part 20 proceedings to obtain a contribution from JMW on the basis that, if the transaction was a fraud, then JMW acted in breach of trust by releasing the loan monies to Attwells.
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