The Scottish Appeal Court has embraced certain English first instance case law to limit the scope of breach of warranty of authority in cases where the solicitors purport to act for genuine borrowers when in reality they are receiving instructions from fraudsters.

On 6 September 2012  the Inner House of Court of Session in Scotland handed down Judgment in the appeals of Cheshire Mortgage Corporation Ltd v Longmuir & Co and Blemain Finance Limited v Balfour Manson LLP. There were strong similarities between the facts of both cases. In both solicitors had acted on mortgage transactions for borrowers when in reality the individuals providing instructions were fraudsters. In each case the lenders instructed their own solicitors being the firm of Mellicks Solicitors. The fraudsters could not be found after the advances were made and the monies disappeared. There was no allegation of dishonesty against the solicitor Defendants. The Claimants sought to contend that the Defendants were in breach of warranty of authority i.e. that they had effectively represented that they were acting for the borrowers and that those borrowers were who they said they were.

At first instance the Lord Ordinary found in favour of the Defendants. At first instance and on appeal the Claimants did not seek to allege that the Defendant solicitors had failed to take reasonable steps in the conveyancing process but rather alleged that simply by acting for fraudsters who were not the individuals they claimed to be then they were in breach of warranty – relying on Penn v Bristol & West.

The Court of Session considered the English authorities from Collen v Wright in the 1850s until Excel v Securities v Masood [2010]. The Court of Session followed Masood in finding that the warranty was that the solicitor was authorised by a person who purported to have authority to instruct the solicitor not necessarily that the person had the attributes they claimed to have – e.g. that they were who they claimed to be. However, in both Masood and Balfour/Longmuir it was clearly anticipated that liability would attach if the solicitor failed to take reasonable steps to check the identity of their client.

Both cases distinguished Penn based on its very specific factual matrix (husband instructing solicitor on behalf of himself and his wife without the wife’s authority) so Penn therefore survives as a binding Court of Appeal authority.