A fraudulent scheme had been devised to obtain a mortgage advance by conducting an apparent sale in the name of a deceased relative. The second defendant firm of solicitors was instructed to act for the claimant lender and the first defendant borrower in respect of the purchase of a property by the borrower from her then deceased brother-in-law.
The lender alleged that, in breach of contract and duty, the firm had failed to report (1) a discrepancy in the borrower’s explanation of a direct deposit of £173,250; (2) forged receipts evidencing the direct deposit paid did not add up to the exact amount of the deposit allegedly paid; and (3) the purchase price was reduced by £16,373 at completion in relation to the costs and disbursements. The lender alleged that, had these matters been reported, they would not have made the advance.
The lender advanced £321,750, of which £305,374 was sent to the vendor’s solicitor (K) by the firm on completion. K ceased practising shortly after completion and the money disappeared.
HHJ Cooke (who also handed down judgment on the recent breach of trust lender’s claim - AIB Group (UK) v Mark Redler & Co) found that it was overwhelmingly likely that the borrower was dishonestly involved throughout and held her liable for the lender’s losses flowing from the advance.
He held that the firm had acted in breach of contract and duty by failing to report each of the matters complained of to the lender. However, the claim failed against the firm as a matter of causation as there was no evidence to suggest that the lender would have refused to lend, had the matters been reported. This decision was made despite the fact that the firm did not appear at trial.
Despite there being no appearance or representation of the firm, the judge showed no hesitation in favouring the firm’s argument on causation. Causation is a central defence for insurers/law firms on such claims and this decision highlights the difficulties lenders sometimes face.