LSC Finance Ltd v Abensons Law Ltd (t/a Abensons Solicitors)

This is an application by the defendant firm of solicitors, Abensons, for permission to appeal against the judgment of HHJ Hodge QC, sitting as a judge of the High Court, given on 11 March 2015 and his consequential order whereby he gave judgment for the claimant, LSC, a commercial lender, in the sum of nearly £176,000. Permission to appeal was refused on the papers by Lewison LJ by order dated 13 July 2015. Abensons have requested that this decision be reconsidered at an oral hearing which has come on before me today. Abensons have been represented at this hearing by Mr Campbell, as they were before the judge.

The claim arose from a loan made by LSC of £169,000 to Mrs Gail Boddice which was intended to be secured by a personal guarantee by Mrs Boddice’s husband, Mr Richard Boddice, and a legal mortgage over a property in Howey Hill in Congleton. In the event the loan was released by LSC to Abensons on 1 July 2013 and transferred by Abensons into a joint account at Barclays in the name of Mr and Mrs Boddice shortly thereafter. However, the intended security was never effected because LSC was a victim of a fraud perpetrated most probably by Mr Boddice.

In making the loan and in advancing the monies, LSC relied upon undertakings and warranties given by Abensons. In this action LSC alleged that Abensons acted in breach of those undertakings, in breach of a warranty of authority, in breach of the duty they owed to LSC to exercise reasonable care and in breach of trust.

The judge held that Abensons had acted in breach of their undertakings and in breach of warranty of authority and that in the circumstances a Quistclose trust arose and that, by releasing the monies, Abensons had acted in breach of trust. The judge also found that there had been a breach of a duty of care. However, he made no finding as to the applicable test for causation of loss and what the damages under this head should be; it was sufficient in his view that the other claims had succeeded.

As Lewison LJ observed and Mr Campbell has accepted in the course of his submissions this morning, if this court cannot be persuaded to take a different view of the interpretation of the undertaking then the appeal cannot succeed. Mr Campbell has therefore focused on the undertaking at this hearing and rightly so.

By way of further background, the property was originally registered in the names of Mr and Mrs Boddice and it was envisaged that the loan would be made to them both. LSC instructed Woodcocks, a firm of solicitors, and Mr and Mrs Boddice were referred to Abensons. On 3 June 2013 Woodcocks wrote to Abensons seeking confirmation that they were acting for Mr and Mrs Boddice and enclosed a copy of the offer letter and the checklist of items which had to be met before completion. That checklist included what Mr Campbell has fairly described as a number of administrative requirements but also the following stipulation at (8):

“Original Executed Security

Please note that we must be either holding the original, validly executed security prior to completion or you provide an undertaking of the same.”

Abensons responded a few days later. On 9 and 10 June Woodcocks wrote to Abensons noting and seeking clarification of a pending application which Mrs Boddice had apparently lodged against the title for the property at HM Land Registry. Subject to clarification, Woodcocks attached a draft legal charge, at that stage to be executed by Mr and Mrs Boddice jointly together with the undertakings which were said to be required prior to completion. A few days later Woodcocks chased Abensons, in particular Mr Abenson, seeking an indication of when his clients wished to complete the matter. They also indicated that they were looking forward to receiving confirmation from Abensons as to the nature of the pending application at HM Land Registry.

On 18 June persons claiming to be Mr and Mrs Boddice attended upon Mr Abenson at his office. An attendance note recorded that Mr Abenson had checked their identification against their passports and Mr Abenson claimed that he had witnessed the execution by them on that occasion of the joint legal charge.

On 26 June Woodcocks discovered that the pending application related to a transfer of the property from the joint names of Mr and Mrs Boddice into Mrs Boddice’s sole name. They then took instructions as to how LSC wished to proceed and shortly afterwards received instructions that LSC was willing to proceed with a loan to Mrs Boddice alone but with LSC having a first charge and Mr Boddice guaranteeing it. They also wanted an undertaking that the property would be transferred back into Mr and Mrs Boddice’s joint names. Accordingly on 1 July Woodcocks sent out an amended offer, an amended charge in the sole name of Mrs Boddice, a form of guarantee in the name of Mr Boddice and an amended form of undertaking varying the draft previously supplied to reflect the fact that the borrower was now Mrs Boddice.

Later that same day Abensons replied to Woodcocks attaching a PDF file which included copies of the undertaking drafted by Woodcocks but copied onto Abensons’ headed paper, the executed guarantee by Mr Boddice and a partially complete and out-of-order copy of the charge in the name of Mrs Boddice purportedly executed by her in the presence of a Mr Witts, who claimed to be an independent mortgage broker. That same afternoon Woodcocks transferred the loan monies to Abensons and the following day Abensons transferred those monies to the account in the name of Mr and Mrs Boddice.

As Mr Abenson accepted, he was concerned about the transfer of the property back into Mrs Boddice’s sole name. However, when he was provided with the charge purportedly executed by Mrs Boddice, he carried out no verification of her signature against any other document. The judge considered that in the light of what Mr Abenson already knew, this was negligent. He had relied entirely upon a document which was proffered to him by Mr Boddice and apparently witnessed by someone who was not a lawyer.

On 2 July Mr Boddice attended once again at Mr Abenson’s office and took away the joint transfer. He returned with it apparently executed and witnessed by Mr Witts once again, albeit with a different address. Mr Abenson said he did not spot that the witness’s address was different and he did not even pick up on the fact that it purported to be the person who had witnessed the previous sole mortgage. Nevertheless, Mr Abenson said that he was concerned about the form of signature of Mrs Boddice, asked to speak to her on the telephone and in the course of the ensuing conversation with the person he was told was Mrs Boddice she explained to him that it was indeed her signature and it had been done in a rush. Once again the judge considered that even if Mr Abenson did make this call he was negligent in accepting the joint transfer as having been duly executed.

Some two weeks later Mr Abenson lodged this transfer with HM Land Registry together with the charge in joint names which had been executed in his presence on 18 June. In August HM Land Registry sent out a requisition expressing concern that the signatures which appeared on the charge in joint names differed from those which appeared on the transfer into the sole name of Mrs Boddice and on the transfer back into joint names. Mrs Boddice subsequently denied having taken any part in these transactions.

That brings me to the undertaking, and this reads so far as relevant:

“Dear Sirs

Re: LSC Finance Limited (‘LSC’) – Gail Ann Boddice (‘The Borrower’) – Richard Harold Albert Boddice (‘Guarantor’) – 2 Howey Hill, Congleton, Cheshire, CW12 4AF (title number CH245246) (‘the Property’)

This undertaking is given in connection with the completion of legal charge by the Borrower in favour of LSC over the Property in connection with the loan from LSC to the Borrower.

In consideration of LSC completing the loan to the Borrower we undertake as follows:-

1

We confirm the execution of:-

(a)

The first legal charge by the Borrower in favour of LSC over the Property (‘the Charge’);

(b)

The Declaration for exemption relating to Business (Declaration).

(c)

The Personal Guarantee by the Guarantor.

2

We also hold sufficient funds to pay the Land Registry fee for registration of the Charge in favour of LSC and restrictions.

3

Within 7 working days of completion, we will complete the registration of the Charge against the Borrower as a first legal charge on the Property. We will send to the Land Registry the Charge and requisite registration fee with form(s) AP1, RX1 and all relevant documents (including certified copies of the Charge) to register the Charge at the Land Registry.”

The judge was evidently referred to a large number of authorities concerning the meaning and effect of the undertaking. In the course of this application, Mr Campbell has referred in particular to the decision of this court in Zwebner v Mortgage Corporation Ltd & Anor (Brookes & Co (a firm) (third party)) [1998] PNLR 769 and the decision of this court in Midland Bank Plc v Cox McQueen [1999] PNLR 593. The judge then reasoned as follows. The undertaking had to be read in conjunction with paragraph 8 of the property security requirements to which I have referred. In this case and on the true construction of the undertaking, Abensons undertook that they would hold an original, validly executed security by Mrs Boddice and not merely by someone purporting to be Mrs Boddice. Moreover, the judge took some comfort from the fact that Mr Abenson himself understood the undertaking in this way. Overall, so the judge continued, the risk of imposture was one which Abensons assumed. While it was true to say that LSC took no steps to verify the identities of Mr and Mrs Boddice, it knew that Mr and Mrs Boddice had instructed solicitors and it looked to those solicitors to carry out that verification. It also seemed clear to the judge that Abensons should also be taken to have been warranting that they were duly authorised to act not simply for a person purporting to be Mrs Boddice but for Mrs Boddice herself. The judge therefore concluded that the claims for breach of undertaking and breach of warranty had been made out.

Upon this application Mr Campbell submits that an undertaking given by solicitors is distinctive because it renders the solicitor personally liable for matters arising out of their client’s transaction with another party. He also submits that the authorities suggest that the obligations undertaken by solicitors should not be interpreted as a guarantee to the other party that the person claiming to be the borrower is not an imposter save where it is clear that the solicitor has accepted such an obligation and so can fairly be held liable when it subsequently transpires that the borrower has engaged in a dishonest scheme involving forgery.

Turning to the undertaking given by Abensons, Mr Campbell submits that this is worded in a slightly uncomfortable way and is equally consistent with an obligation to take those steps necessary to ensure that they held at completion a charge which had been executed in accordance with the formalities, and that it ought to be interpreted in that more limited way. If LSC wanted an undertaking by Abensons guaranteeing the identity of the borrower and guarding it against dishonesty on the part of those to whom it believed it had agreed to lend, it could and should have spelled this out in a clear and unambiguous way.

Drawing the threads together, Mr Campbell submits that undertakings drafted by solicitors should also be interpreted in a way which is consistent with the commercial context in which they were given and accepted; that the words of the undertaking in this case interpreted objectively required Abensons to be in possession of a charge which complied with the statutory formalities and which was executed by the person they believed to be Mrs Boddice; and that the undertaking did not impose an absolute and unqualified obligation guaranteeing that the real Mrs Bodice had signed it and that the judge fell into error in interpreting it in that way.

I of course accept that when interpreting a contract the court is concerned to identify the intention of the parties by reference to what a reasonable person having all of the background knowledge which would have been available to the parties would have understood them to be using the language of the contract to mean. The court must do this by focusing on the meaning of the words in their documentary, factual and commercial context.

In this case Abensons were instructed not by LSC but by Mr and Mrs Boddice. It must have been clear to them at all times that LSC had no previous connection with Mr Boddice or Mrs Boddice. Accordingly, LSC used and supplied to Abensons appropriate property security requirements, including specifically by paragraph 8 the requirement that either LSC had to be holding the original, validly executed security prior to completion or Abensons had to provide an undertaking of the same.

Turning now to the actual undertaking given by Abensons, in consideration of LSC completing the loan to “the Borrower” they undertook and confirmed the execution of the first legal charge by “the Borrower” in favour of LSC over the property. Moreover, “the Borrower” was defined as Gail Ann Boddice. In my judgment the wording of the undertaking is clear. Abensons were required to confirm the execution of the first legal charge by Gail Ann Boddice in favour of LSC over the property. There is, in my judgment, no room for interpreting the words of the undertaking as an undertaking merely to take those steps necessary to ensure that Abensons held at completion a charge executed in accordance with the statutory formalities whether or not that charge had been executed by Mrs Boddice.

Mr Campbell submits that the interpretation arrived at by the judge involves in substance rectification of the undertaking by adding the word “real” between the word “the” and the word “borrower”, but it seems to me that the interpretation arrived at by the judge is the natural meaning of the words used and it is in truth the interpretation for which Mr Campbell contends that involves the rewriting of the undertaking. Furthermore, I do not accept that the property security requirements can be ignored. Paragraph (8) of those requirements does, so it seems to me, form part of the background against which the undertaking in issue must be interpreted. Paragraph (8) of those requirements does in my judgment confirm what I believe the natural meaning of the undertaking to be.

Mr Campbell has also placed particular reliance at this hearing upon the decision of this court in Midland Bank v Cox McQueen. The case concerned security purportedly given by a wife for a loan by the bank to her husband. The bank retained the defendant firm of solicitors to explain various relevant documents to the wife, to draw to her attention that the charge in issue was an “all monies” charge, to obtain her signature on the relevant documents and to ensure that she signed freely. The documents were returned to the bank apparently properly completed with the wife’s signature witnessed by one of the defendants’ employees and the defendants were duly paid by the bank for their services. Some years later it was found that the wife had not signed the charge and that instead her husband had brought an imposter to the defendants’ offices who had been passed off to the defendants as the wife. The bank then brought an action against the defendants for breach of their original letter of instruction. The court recognised that the issue was one of the proper interpretation of that letter. It also considered that the features of the background of most significance were that the defendants had been retained in connection with the bank obtaining security for a loan which in its commercial judgment it had decided to make to the husband. The defendants were retained in a professional capacity to provide services to the bank and in the ordinary way were not required to take commercial risks of the kind in issue and that the bank would normally be in a better position than the solicitors to form a judgement as to the customer’s trustworthiness. The question for the court was whether the bank intended to ask for and the solicitors intended to give a promise to answer for the fraud of the husband even if that fraud could not be detected by exercising all proper care. The court answered that question in the negative. The language used did not compellingly indicate otherwise.

In my judgment the circumstances of that case are very different from those of the present case. There the defendants were retained by the bank to perform professional services of an advisory and administerial kind. Second, the words of instruction necessarily involved the defendants exercising judgment as to the extent of the explanation which the wife would require. An obligation of that kind was, so this court held, not likely to be of an absolute nature. Third, the bank agreed to lend a substantial sum to its customer, the husband. The wife was not, however, a customer of the bank; nor was she a client of the defendants. In all these circumstances I can readily understand the conclusion to which this court came. It could not be said that the bank intended to ask for, and that the defendants intended to give, a guarantee against the husband’s fraud even if it could not be detected by exercising proper care.

By contrast, in this case Abensons were not retained by LSC but by Mr and Mrs Boddice. Moreover, Abensons gave an undertaking to LSC and the words of that undertaking were, in my judgment, clear: LSC required and Abensons undertook and confirmed the execution of a first legal charge by Mrs Boddice in favour of LSC over the property. They have, in my judgment, broken the terms of that undertaking.

For all these reasons, and despite the careful and thorough manner in which the application has been made by Mr Campbell, I have come to the conclusion that an appeal would not have a real prospect of success and that there is no other compelling reason for this court to hear an appeal. Accordingly, this application must be refused.