Two Inner House cases in which Cheshire Mortgage and Blemain Finance 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.
The banks argued that the solicitors warranted that they had the authority of the individuals who owned the properties over which standard securities were purportedly granted. The Inner House refused the appeal and upheld Lord Glennie’s earlier decision in favour of the solicitors.
An agent’s warranty authority is of limited scope. Whilst an agent will impliedly warrant that he has authority to act on his client’s behalf it does not follow that he warrants the identity of his client nor the client’s title to the property in question. The court should not readily impose upon a person rendering professional services an absolute, unqualified obligation amounting, in effect, to a guarantee of his client’s identity and title. Where the risks are commercial risks involved in lending to a person who may not be all he claims to be, there is no reason why the risks should be transferred from a commercial firm to a professional firm such as a firm of solicitors.
Solicitor’s letter of obligation
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 the letter of obligation was found to be collateral to the void security transaction (and consequently it too was unenforceable).
The full judgement is available from Scottish Courts here.