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A salutary warning to us all!

13.07.2012

Lloyds TSB Bank v Markandan
& Uddin EWCA 2012

Gullands partner Paul Burbidge explains how this recent court decision illustrates how those who act on clients business and affairs must be ever vigilant against fraud.

The Court of Appeal upheld the decision of the High Court which concerns Solicitors acting for a Bank which “were entirely honest in their conduct and were just as much victims of fraud as the lender” but nevertheless the Court felt their conduct fell below the required standard and the firm was found liable for the entirety of the lender’s loss!

This is good news for mortgage lenders in the event of fraud as they do not need to show negligence or breach of conduct on the part of their Solicitor if they can show a breach of trust!

Interestingly, the Court of Appeal did make the point that had the firm acted to a higher professional standard in carrying out the transaction, the lender may have continued to have a successful claim for breach of trust but the Court would have been more likely to exercise its discretion in an application for Section 61 Relief under The Trustee Act 1925.

The mortgage lender was in fact Cheltenham & Gloucester (C & G) whose business was taken over by Lloyds TSB in 2007.

The case involved an application to C & G by a man claiming to be a Mr V Davies who applied for a £977,500 advance on a property being acquired at £1,150,000.  Mr Davies used a false identity and the property was not for sale!  Valuers acting for C & G valued the property at £825,000 and C & G advised Mr Davies via his broker of the lower valuation figure.  Mr D requested C & G to go ahead on a 90% loan of the revised valuation and an offer was made by C & G of a £742,000 loan which Mr D accepted.
C & G instructed Markandan & Uddin (M & U) as did Mr D.  A party claiming to be  a firm called “Deen” instructed by the seller, contacted M & U to confirm they had been instructed by the seller.  They appeared to look like a genuine firm with the same name who had nothing to do with the transaction.

Deen confirmed that Mr D had paid the deposit to them direct (a little odd) and M & U received the advance monies from C & G after they had submitted their Report on Title.  At this stage M & U had done everything that one could reasonably expect of a firm of Solicitors in these circumstances except they had not made absolutely sure that they were dealing with a genuine firm.  Exchange and completion occurred simultaneously on the 4th September 2007 when M & U sent over £707,613 to the Deen account.

This was on the usual undertaking they had given to provide the completion documents in return.  Deen, of course, did not send any documents to M & U (as they did not have any) and M & U chased them about this.  Deen said that they wished to return all the monies save £5,000 for M & U to forward on to a further client account.  The monies were received back by M & U (again somewhat odd) who forwarded them on as requested.  Frankly, all of this is quite bizarre and I would expect that none of my colleagues here would have embarked on that course of action.

This all occurred despite M & U being without any completion documents to enable them to register the purchase or the charge. In addition they did not carry out a priority search at the Land Registry.

Eventually, C & G were alerted as to what had occurred and advised M & U they were no longer on their panel of lenders solicitors.

The Court of Appeal held that despite M & U acting honestly, conscientiously and thoroughly they failed on two accounts:-

  1. they failed to establish that Deen actually had an office in Holland Park which the fictitious Deen had alleged.
  2. they had parted with monies on a second occasion when they knew Deen had breached their earlier undertaking to send through the completion documents.

Needless to say, we here at Gullands are very much aware of the possibility of fraud taking the form of fictitious parties to the transaction and, indeed, fictitious mortgage brokers and firms of Solicitors/Licensed Conveyancers and will do all we can to ensure our clients do not fall victim of the activity of these fraudsters.

If you are concerned about fraud or would like advice on steps you can take to reduce risks, contact Paul Burbidge, Head of Commercial Property at Gullands by email at [email protected].

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