Two Outer House cases in which Cheshire Mortgage and Blemain Finance (connected companies) were the victims of a mortgage fraud and sought to sue the solicitors instructed by the fraudsters (the banks had instructed separate solicitors) for breach of warranty of authority.
In each case the fraudsters had pretended to be persons owning property which they were seeking to use as security for a loan (of £355,000 in one case and £203,000 in the other). They had been able to produce evidence of their identity in the form of utility bills and driving licences to their solicitors and to the banks. In both cases the fraudsters had approached the bank (directly in one case and via a broker in the other) before instructing their solicitors.
The banks argued that, in each case, the solicitors warranted that they had the authority of the individuals who owned the properties over which standard securities were purportedly granted. The solicitors recognised the doctrine of a solicitor giving an implied warranty of authority. However, they contended that it does not go as far as giving a warranty of the identity of the person for whom they act, nor does it include any warranty as to whether he is or is not the owner or occupier of any particular property. In effect the solicitors said that they warranted only that they had authority from persons who were already known to the banks and with whom the banks were already dealing.
Lord Glennie found in favour of the solicitors. The circumstances in which the solicitors came to transaction were of particular importance. By the time the solicitors became involved, the banks knew who they were (or who they thought they were) dealing with. They had already made the decision to lend to those individuals. The solicitors had been instructed (by the fraudsters) for the limited purpose of drawing up the loan and security documentation and liaising with the banks’ solicitors.
In one of the cases there was also discussion as to whether the solicitors were liable to the bank in terms of the letter of obligation they had granted. The bank argued that they suffered loss as a result of the solicitors’ failure to procure the title deeds recording the security in terms of the solicitors’ undertaking. However, Lord Glennie again agreed with the solicitors’ arguments on this point:
- the letter of obligation was collateral to the principal transaction between the bank and the borrowers and could not be enforced if that principal transaction was void; and
- in any event, the bank could show no damages flowing from the failure by the solicitor to produce a title encumbered with the Standard Security, since the Standard Security referred to in the letter of obligation was itself void.
The full judgement is available from Scottish Courts here: