Godiva Mortgages Ltd v Khan & Anor

The claimant ("Godiva") seeks damages for fraudulent misrepresentation against the first defendant ("Mrs Khan") and for breach of contract and/or in negligence against the second defendant firm of solicitors ("KL"). Mrs Khan appeared at trial and acted in person, though she had been legally represented for most of the pre- trial period. KL did not appear at trial, in circumstances noted below.

On 10 September 2009 KL acting for Mrs Khan and Godiva effected, so they thought, simultaneous exchange and completion of the purchase by Mrs Khan from her brother in law Mr Imtiaz Chaudhry of a house at 22 Melrose Avenue, Wimbledon. KL dealt with a firm called Kaihiva & Co on behalf of the seller. The price stated in the contract was £495,000, of which £173,250 (KL were told) had already been paid by way of deposit direct to the seller. The balance was £321,750. Godiva had agreed to make a mortgage advance of that amount, and paid it to KL's client account ready for completion. At completion, KL retained £16,376 for their costs and disbursements, principally stamp duty, and paid £305,374 to the client account of Kaihiva, having apparently been told that the seller would accept that (reduced) amount to complete. Before the first repayment was due on the mortgage Mrs Khan cancelled her direct debit instruction to her bank in favour of Godiva, telling Godiva that she had heard nothing from KL about completion and assumed that the transaction had not gone ahead.

It is now clear that the transaction was thoroughly fraudulent in nature. Kaihiva did not comply with their undertaking to discharge the existing mortgage on the property and the money paid to them has disappeared. Kaihiva as a firm ceased to practise a few days later on 30 September 2009. Neither Mrs Khan nor Godiva has obtained any title at all to the property because the named seller, Mr Chaudhry, had died over a year beforehand on 14 August 2008 and the contract and transfer purportedly signed by him were forgeries. Mrs Khan's case is that she is an innocent victim of this fraud, among other things having no knowledge of any documents signed in the name of Mr Chaudhry. She thought she was buying the property from her sister as administratrix of Mr Chaudhry, and that KL were dealing not with Kaihiva (of which firm she has no knowledge at all) but a firm called Markandan & Co who were solicitors for the estate. Godiva's case is that on the contrary Mrs Khan is a prime mover in the fraud; there never was a genuine transaction intended for the purchase of the property for £495,000 or any other amount and the alleged purchase was concocted by Mrs Khan and others to obtain money by deception.

The allegations against KL are not of fraud but of negligence and breach of contract, in that they failed to advise Godiva of matters that would have alerted it and caused it to refuse to lend. KL (acting by solicitors instructed by its insurers) initially filed a defence, but it has taken no active part in the claim since then. KL has also ceased to practise and the solicitors originally acting have ceased to do so having failed to receive any instructions from KL itself. On 17 November 2011 I made an order debarring KL from relying on evidence at trial except as served by 30 December; no such evidence was served and KL did not appear at the trial. Notwithstanding the lack of active defence, I must of course still be satisfied that the case against KL is made out on the evidence, to which I will return in due course.

In assessing the case against Mrs Khan, and in particular the extent to which she did or did not know of various matters, or whether there ever was a genuine transaction intended, much depends on my assessment of her credibility as a witness. I came to the view that she was incapable of belief unless supported by independent evidence, there being far too many instances of her testimony being proven to be false or being simply incredible to make it safe to rely on it in any respect. I must mention at the start one matter which adversely affected her credibility from the beginning of the trial.

On Friday 23 March, the last working day before the trial, an application was heard by HHJ Purle QC for the trial to be adjourned on account of the alleged unfitness of Mrs Khan to take part. It was presented by solicitors and counsel acting for her (not the same firm as had previously acted for her and withdrawn) and relied on a letter and Med 3 sick note from her GP stating that she was too affected by depression to be able to cope with the trial. HHJ Purle refused that application, concluding that it was a last desperate attempt to avoid the trial. Within an hour, the solicitors had sent a fax notice that Mrs Khan would henceforth act in person. On Monday 26^th, Mrs Khan attended court, but before the trial could start she collapsed outside the court and was attended by paramedics. She was conscious but unresponsive to their questions, and the paramedics who were concerned about any possible medical reason for her behaviour were shown, at their request, the documents on the court file from her GP.

One of the paramedics then telephoned the GP and was told that he had no knowledge of Mrs Khan, he had not issued any letter or sick note referring to her and his practice had no patient registered by that name. She was taken to hospital by ambulance. Later in the day the claimant's solicitor sent the GP copies of the two documents apparently sent by him, and received a response by fax with two very similar, but not quite identical, documents that the GP had issued, referring to a patient with the same National Insurance number and date of birth as Mrs Khan, but called "Sabina Ahmed" and having an address in the Home Counties, whereas Mrs Khan gives an address in Leeds. He confirmed that he had no knowledge of "Sophie Khan".

Having been shown that response, I directed that the trial not be vacated, but adjourned to 10.30 the next day, and that steps be taken to notify Mrs Khan that any application for a further adjournment would be considered at that time. She attended the next day, and made no further application. Although she said at various points in her evidence and closing submissions that she had been too confused to understand the proceedings and what she was being asked, in my view that was obviously not the case. She was initially somewhat unresponsive and withdrawn, but it was clear she was able to follow documents and questions, and had a good recollection of relevant matters when it suited her. At one point in her evidence she said that she had not had her glasses with her and so been unable to read any documents, a matter she had not raised beforehand and which did not appear to have been the case when she had been taken to documents in cross examination.

Her explanation of the documents from the GP was that she had changed her name in order to make a new life in Leeds after suffering violence from her former husband. She had however continued to be registered with her old GP and had been too ashamed to tell him of the change of name. The address in his records was one she used when staying in the South. She had been to the doctor to obtain the letter and Med 3 form, which he had issued in the name known to him, and then "a friend" had altered them to show the name and address known to the court. She had given them to the solicitor acting in that form. She said she knew it was wrong but had not been in a fit state of mind.

At best, this showed that Mrs Khan was prepared knowingly to present altered documents to the court. I regard the explanation given as incredible; if she had changed her name, why should she be ashamed to tell her doctor? No reason was given, but if she feared the doctor might tell her former husband, she would surely have registered with a different doctor in Leeds where she now lived. If there was a good reason to be known as Sabina Ahmed to the doctor, why enlist a forger to alter his documents rather than put forward that explanation to the court? I do not accept that the explanation that the documents were altered after they were issued is complete; as mentioned above the documents presented to the court are similar but not identical to those the doctor accepts he issued. As well as the differences in the patient's name and details, the doctor's signature appears in a different location, suggesting that what was presented to the court were separately created documents, rather than altered ones. My impression was that she must have other reasons for maintaining two identities and was as capable of deceiving the doctor into producing documents that would suit her attempt to put off the trial as she was of altering those documents (or procuring false ones) to put them before the court.

The mortgage application was made online on 9 March 2009. A copy is in the bundle at p 189. It is accepted that the online form was completed and submitted on Mrs Khan's behalf by Mortgage Financial Solutions Ltd ("MFS"). Mrs Khan referred to Mr Mark Garry, a broker employed by MFS, as "my packager", though she also said she had dealt with other individuals ("Adrian" and "Kate") at MFS. Mrs Khan signed a form of declaration (p352) also dated 9 March 2009, which stated

The information given in the online application was untrue in a number of respects. Mrs Khan's evidence was that she had not completed and had never seen the online form, but trusted MFS to complete it correctly. She had given them the correct information (or in the case of her business accounts to which I refer below she had referred MFS to her accountant) and if there were any inaccuracies that was MFS's fault and not hers. She had signed the declaration but it had never had attached to it any other pages or copy of the information.

The online form included the following:

On Mrs Khan's own case, the representations as to her status as an owner occupier, the absence of other mortgages and the amount of her income were false. MFS must have known at the time that the first two were false because she had told them the correct position. MFS must have known that the income figure they gave was false, either because they had seen Mr Olujitan's accounts showing different figures prior to submitting the application or because they made the application having been told to obtain information from Mr Olujitan but not having waited for it to arrive and making up their own figure instead. MFS thus made fraudulent misrepresentations.

It is admitted in paragraph 10 of the defence that Godiva relied on these statements in making its advance. Paragraph 35 is apparently in conflict with this in that it denies "in the premises" that Godiva agreed to make the loan "in reliance on any false representation made by [Mrs Khan]", but this seems to relate to the immediately preceding paragraphs denying that Mrs Khan was responsible for the false representations made, rather than reliance by Godiva on those representations. In any event it could not in my judgment be seriously contended that Godiva did not rely on the truth of the contents of the application form in agreeing to make its advance. It is accepted that MFS were Mrs Khan's agent to make the online application and thus authorised to make representations to Godiva; her whole case is that she trusted them to do so accurately. Her responsibility is denied only on the basis that she did not personally know what was in the application and is not to be blamed for any misrepresentations by MFS.

As a matter of law, it seems to me, this defence cannot succeed even if I were to accept Mrs Khan's position on the facts. The relevant principle is set out in Clerk & Lindsell on Torts, 20th edition at para 18-27:

Further, by signing the declaration form, Mrs Khan directly represented that the content of the application was true and accepted responsibility for anything completed in it by MFS on her behalf. She cannot now escape from the effect of what she signed by saying that in fact she had never seen the application she was verifying. Thus on two bases Mrs Khan is responsible for the fraudulent misrepresentations she admits were made, and liability is established against her. I will however go on to deal with other matters since there were other fraudulent misrepresentations alleged, particularly that there never was intended to be a genuine sale at a figure of £495,000, and having heard the evidence of the parties it is important that I reach a conclusion as to whether Mrs Khan is as she says an innocent party swept up in the fraud, or a participant in it.

Throughout the transaction, Godiva sent any written correspondence to Mrs Khan at 21 Trentham Row, the address she had given. She did not at any stage notify any other address. Her evidence before me was that that had been her address at the time of the application, but by the time of completion she had moved out and was living at 29 Cross Flatts Rd. Her relatives Mussarat and Mazar Hussain were living at 21 Trentham Row. She was in touch with them, as Mazar Hussain had passed on two letters to her, but she said that these were the only ones she had received, and had no explanation what had happened to the others, save that they must have been forged for KL's file without ever being sent.

There was an initial bout of normal activity in relation to the mortgage application in March 2009. MFS sent the declaration signed by Mrs Khan and her identity documents by fax to Godiva on 11 March, and on 13 March a valuer produced a valuation of the property at £575,000. The formal offer letter was sent on 16 March (p365) and on the same day Godiva wrote to Markandan & Co instructing them to act for Godiva as well as Mrs Khan. (p380). Thereafter, as far as Godiva was concerned, nothing happened for some months.

Unknown to Godiva, on 6 May 2009 letters of administration to the estate of Mr Chaudhry were granted to Mrs Khan's sister Raenna and Raenna's daughter Filza (p608). It is clear that Mr Miah acted in obtaining this grant, and that Mrs Khan was aware that it had been obtained.

On 15 August Godiva wrote to Mrs Khan, MFS and Mr Miah reminding them that the mortgage offer was valid only until 9 September. Mrs Khan accepted that she 'must have' received this letter, sent to 21 Trentham Row, and that that was her correct address at the time. This appears to have provoked renewed activity, in that on 21 August Mrs Khan informed Godiva by telephone that she was changing her solicitor to Doreen Powell, the principal at KL. In her witness statement she said that after the grant of administration Mr Miah had advised her that he would be conflicted if he acted for her as purchaser as well as the estate as seller. She said in cross examination that Mr Miah had informed Mrs Powell about the transaction by email, but she herself had not met Mrs Powell until after 'completion', nor spoken to Mrs Powell on the telephone except on one occasion, which was also after completion. Mr Miah had written letters and chased Mrs Powell as to progress of the transaction, but received little or no response.

Mrs Khan had no evidence in support of the alleged reasons for Mr Miah declining to act, or of the alleged contact between Mr Miah and Mrs Powell. She produced no evidence from Mr Miah, either by way of witness statement or documents from his file, although they would presumably have been obtainable at least by her sister Raenna. She served a witness statement by Raenna, but Raenna did not appear to give evidence at the trial. She was questioned closely about why Mr Miah would not have realised the conflict existed from the beginning, since he had always acted for the estate and was on Mrs Khan's account the one who suggested that funds be raised by selling the property to a family member. It was suggested to her that a more likely explanation for instructing new solicitors on both sides of the sale may have been that Mr Miah could not deal with contract documentation naming the deceased Mr Chaudhry as the seller, but Mrs Khan denied this and maintained she throughout thought the transaction was with the estate as seller, represented by Mr Miah. She had no knowledge that Kaihiva were instructed, or how they came to represent themselves as instructed, on behalf of Mr Chaudhry as seller.

In the absence of Mr Miah's file there was no documentation to indicate that he behaved as if he were acting for the estate as seller. KL's file was disclosed, but contains no evidence of contact from Mr Miah by email, telephone or letter, nor any indication that KL were told at any stage that the seller was anyone other than Mr Chaudhry, represented by Kaihiva.

From the documents disclosed, it appears that the first KL may have known about the matter was when they received, on 28 August, a package of documents from Godiva under cover of a letter dated 27 August beginning "Please find enclosed mortgage instructions in relation to your above named client". It enclosed an amended mortgage offer letter naming KL as Mrs Khan's solicitor. In relation to Mrs Khan, the documents sent gave only the address of the property to be mortgaged, with no reference to her contact address in Leeds, or any telephone number other than Godiva's. There is however a note of a telephone attendance on 28 August (p462) which says:

It is not clear whether this was a call made or received by Mrs Powell at KL. If she had made it, she would first have had to telephone Godiva in order to obtain Mrs Khan's number, but there is no evidence of that on her file or Godiva's. Accordingly it seems more likely that it was an incoming call. There is a manuscript note on the front page of Godiva's letter recording the address "21 Trentam Rd" which may have been made because Mrs Powell slightly misheard the address "21 Trentham Row" given by someone over the telephone. There is no similar note of a contact telephone number for Mrs Khan.

Beneath the telephone attendance note is another note recording:

None of the documentation received from Godiva gives the name of the seller of the property or any name or contact details for the seller's solicitor. Nor is this information recorded in the telephone notes I have referred to. On the same date however, 28 August, KL wrote to Kaihiva (page 450) as follows:

Mrs Khan's oral evidence was that she had not taken part in any telephone conversation with Mrs Powell on 28 August 2009. She had not spoken to Mrs Powell until after the telephone call she received from Godiva in October after the first payment on the mortgage had been missed. Although her witness statement said that she had instructed KL before telling Godiva that she had done so (page 170 at paragraph 17) she was unclear in cross-examination as to how these instructions have been given, saying only that she thought she had just phoned Godiva and called them that she would be using KL, and that she thought Mr Miah sent Mrs Powell an e-mail.

If this telephone call was not with Mrs Khan, there is an obvious question as to who else it might have been. It was either somebody calling into Mrs Powell claiming to be Mrs Khan with knowledge of the fact that Mrs Khan had told Godiva that she would be using KL and that Godiva had the day before sent out a revised mortgage offer letter and documents to KL (a copy of which was sent to the Trentham Row address, see p611) or it was someone who answered a call made by Mrs Powell, which must have been to a telephone number obtained from Godiva, being one of the ones given on Mrs Khan's mortgage application. In either event, that person must have been well prepared with knowledge of the transaction. It would appear that the information as to the name of the seller and the fact that Kaihiva were acting on his behalf was most likely given in that telephone call. It could not have been obtained from Godiva, because that information was not recorded on Godiva's files. Nor is there any indication that it was known to MFS so that it could have come in the call from the broker. On Mrs Khan's account it could not have come from an email from Mr Miah, since Mr Miah was acting for the estate and would not have given another firm's name as acting for the seller. Whoever gave that information must have known that Mrs Khan was instructing KL and sufficiently prepared the ground for the fraud to have thought up the idea of conducting the sale in the name of the deceased and arranged a solicitor, Kaihiva, to act in his name.

It is clear from the telephone note that Mrs Powell was told that the seller was an individual, with no reference to the estate of a deceased person. Further, that a deposit had actually been paid to that person in order to prevent him selling the property elsewhere. That would be inconsistent with Mrs Khan's case that the deposit was a "gifted deposit" in the sense that it was a notional figure that was never paid.

Also on 28 August, Mrs Powell wrote a client care letter to Mrs Khan at "21 Trentam Rd" (p 457). This is one of only two letters that Mrs Khan accepts that she received from KL. She accepts that she signed and returned the copy which appears on KL's file, having filled in (p454) her mobile telephone number and e-mail address, specifying 21 Trentham Row as her contact address (which would be odd if she was not living there at the time and would not expect to receive documents sent there) and enclosing copies of her passport and bills (which gave her address as 21 Trentham Row). She completed the information sheet attached recording amongst other things the answer to the question "Where are the deposit funds being held and in whose name?" as "gifted deposit (lender is aware of this)" and the desired completion date as "8 September 2009". She denied that she had at any time told KL that a deposit had actually been paid to anyone, or that Mr Chaudhry was the seller.

KL wrote two letters to Mrs Khan on 1 September 2009, the first (p463) enclosing a Fixtures and Contents form, Property Information form and a plan, all of which appear to have been received from Kaihiva, and notifying her that they had "now received a draft contract from the seller's solicitor". Both the forms have been signed "IA Chaudhry". Mrs Khan denied that she ever received this letter or saw the forms. The second letter begins "I write to confirm that your instructions are to aim for both exchange of contracts and completion on 9 September 2009." It would appear from that that Mrs Powell must have received telephone instructions from someone on that day. She also wrote to Kaihiva on the same day acknowledging receipt of a letter enclosing draft documents and saying "we are instructed by our client that she has agreed with yours but this matter should progress without further delays", which again suggests that some instructions have been received. Mrs Khan denies that she gave any such instructions, by telephone or otherwise. On 2 September Mrs Powell wrote again to Mrs Khan enclosing a form of authority in relation to the return required for stamp duty. On 3 September Mrs Powell obtained what appears to have been an online printout of the Land Register entries for the property, which continued to show Mr Chaudhry as the registered proprietor.

On 4 September Mrs Powell prepared a telephone note (p489) recording:

Mrs Khan denies being party to any telephone call on 4 September, and denies receiving the letter sent that day. She denies that she ever had, or said she had, receipts for a deposit actually paid. KL's file does however contain three such receipts (although the total amount stated is slightly less than the £173,250) each of which is signed in the name of IA Chaudhry. There is no indication how they were received by KL, but it would seem likely that they were sent promptly by whoever promised to do so in the telephone call on 4 September, since Mrs Powell wrote on 7 September to Kaihiva enclosing copies of them and asking for confirmation (which was promptly given) that Kaihiva were instructed that their client had indeed received £173,250 by way of deposit. Clearly, whoever was responsible for telling Mrs Powell that cash deposits had been paid was also giving the same instructions to Kaihiva.

On 7 September 2009 Mrs Powell wrote a further letter (p 496) to Mrs Khan at 21 Trentham Row enclosing the contract and mortgage deed required for exchange and completion, explaining both documents and requesting that both be signed and returned. On the same day she wrote to Kaihiva saying "we confirm that we have taken our client's instructions in this regard and we confirm that the form of contract is approved as drawn. We are instructed that our mutual clients have agreed that this matter should proceed by way of simultaneous exchange and completion on the 9 September and we have requested the funds from our client's lenders in order that we can so proceed." The request for funds was sent by fax to Godiva on the same day.

Mrs Khan accepts that she received the letter sent to her. In her witness statement she said that it had contained the mortgage deed, but not the form of contract. In an affidavit in the freezing injunction proceedings in this case (p122) she said that she signed this, having it witnessed by Mazar Hussain, and returned it to KL. She said that she believes she assumed that this must have been part of the contract, though it is hard to believe that she could have done so if she had read the covering letter which makes clear that they are separate documents, which is also something that she would be expected to know as a person who was both a professional financial advisor and someone who had previously purchased at least two other properties. Further, the mortgage deed is itself clearly headed with Godiva's name and the words "Mortgage Deed" in large capitals. The possible significance of whether Mrs Khan did or did not see the form of contract is that it has the seller's name pre-completed on it as "Imtiaz Ahmed Chaudhry" with no reference to his estate or personal representatives, and the pages of Special Conditions attached name the seller's solicitor as Kaihiva.

Signed copies of both the mortgage deed (p518) and contract (p526) appear in the documents obtained from the KL file. When she was taken in cross-examination to the mortgage deed Mrs Khan at first said that she had never seen that document before, that the signature on it was not hers, and the witness's signature on it was not that of Mazar Hussain. She was then shown the contract, and denied that the signature on it was hers. It was put to her that she had previously sworn an affidavit saying that she had signed the mortgage deed and that it had been witnessed by Mr Hussain, whereupon she backtracked and said that Mr Hussain had "a different signature now" and that the signature on the document "might have been [his] at that time". She then conceded that she had in fact signed the mortgage deed. It was then that she first mentioned that she had not brought her glasses with her and was having difficulty reading the documents, although that did not appear to me to be the case either before or after this point in her evidence.

A policy of insurance in Mrs Khan's name was put in place by MFS, and a copy of it faxed to KL on 8 September (p508). It specified the starting date for cover as 9 September. It would appear that KL must have asked someone (either the person they were dealing with as Mrs Khan, or MFS direct) for confirmation that insurance cover was in place, since they had ticked the box on Godiva's form of certificate of title, sent the day before and requesting funds in time for completion on 9 September, to that effect (p499).

Exchange and completion were agreed by telephone on the afternoon of 10 September. The reduced amount of £305,374 was sent by funds transfer to Kaihiva that day (p520/1). There is no record of how the reduced amount came to be agreed but it was presumably by unrecorded telephone conversation between KL and Kaihiva on 9 or 10 September, since Mrs Powell prepared a completion statement (dated 9 September, p524) showing £16,375, the amount necessary to pay her costs and disbursements as "balance to complete (paid by seller)". On 10 September KL wrote to Mrs Khan and Godiva (p529) confirming that exchange and completion had taken place. Kaihiva wrote the same day acknowledging receipt of the purchase money and sending the contract and transfer, both of which bear signatures in the name of Mr Chaudhry (p530ff). On 11 September KL submitted an electronic stamp duty return and paid the duty from the funds they retained.

It would seem that Godiva did not wait for confirmation from KL, but wrote to Mrs Khan on 9 September (p407) stating that completion had taken place that day and that the first payment from Mrs Khan's direct debit would be taken on 28 October (p409).

On 12 October Godiva sent a standard letter chasing the title deeds, prompting a letter to Kaihiva reminding them to send the form of discharge of the mortgage in Mr Chaudhry's name. On 19 October KL relied to Godiva saying they were awaiting the discharge from the seller's solicitors.

It was on 19 October that matters started to unravel. It appears that Mrs Khan must have cancelled her direct debit instruction in relation to the mortgage on or just before 24 September 2009, because on that date a standard letter was sent by Godiva to Mrs Khan (p 410) saying:

According to Mrs Khan's affidavit resisting the freezing injunction (p 113 at paragraph 15 and 16)

There is no evidence of any sort to confirm the allegation that KL told MFS that they would not be able to complete before the mortgage offer expired. Mrs Khan has not produced any evidence on behalf of MFS, or any documents from their file. There is nothing on KL's file to suggest that they made any such statement to MFS. The fact that MFS arranged an insurance policy on 8 September with a starting date of 9 September is not consistent with their having been told, by 8 September at least, that completion would not take place. The amount of documentation on KL's file between 7 and 10 September makes it clear that they were devoting all their efforts to ensuring that exchange and completion did take place, and I can see no reason at all why they would simultaneously have told MFS that it would not occur. Once completion had been achieved, KL wrote to Godiva and to Mrs Khan to confirm that this was the case. Although there is no record of their having told MFS the same, it must be unlikely that they would have told MFS that completion had not taken place at the same time as they told their client that it had done so. Even if it were supposed that KL were actively participating in the fraud and intending to deceive Mrs Khan, the inconsistency would be bound to have become apparent almost immediately.

Although Mrs Khan says that she did not receive any of the communications from KL or Godiva confirming that exchange and completion were about to be, or had been, achieved, and says that she thought that Mr Miah was pressing KL to get on with the transaction, she accepts that she did not take any steps to contact KL when, according to her, MFS told her that the transaction would not complete. She did not contact either KL or Godiva to tell them that she was intending to cancel the direct debit, or that she had done so. She did not respond to the letter notifying her that the direct debit had been cancelled, although of course her case is that this too is one of the letters that she did not receive.

Mrs Khan did speak to Godiva on 19 October. From Godiva's computer records it seems that she responded to a message left by them, which may in turn have been prompted by an internal note dated 12 October recording that while there was not yet any evidence of fraud in this case, Godiva had been alerted by Yorkshire Building Society that "the same solicitor and broker" had been involved in a number of their cases that had "gone bad", that checks had revealed that HMRC had no record of Mrs Khan declaring any taxable income and no business listings could be found for the Spice Station restaurant. Godiva's note of that conversation is as follows:

On 20 October Mrs Khan did speak to Mrs Powell. Her file note of conversations on that day (p 547) appears to express her bewilderment at what she was told:

The KL file includes a copy of a letter from Mrs Khan dated 20 October 2009 (p545). It appears that it must have been written after Mrs Khan spoke to Mrs Powell, though it is not clear whether it was sent by fax on that day or delivered when Mrs Khan attended the office the next day. It gives the sender's address as 21 Trentham Row, and reads as follows:

Mrs Khan wrote a similar letter to Godiva, also dated 20 October and written from 21 Trentham Row (p 415) in which she said:

There are many respects in which it seems to me that Mrs Khan's explanations given in evidence and in these letters do not ring true. She was strangely inactive in enquiring about the transaction at or shortly after 9 September, which she knew was the date the mortgage offer was about to expire. She had received the mortgage deed (sent 7 September by post, presumably received and returned at earliest on 8 September) and so must have thought that KL were preparing for exchange and completion. She sent that deed back direct to KL, as she had her client care letter and identity documents, but did not make any direct enquiry as to what was happening to meet the deadline, only making enquiries through Mr Miah.

Mrs Khan's account of how she came to believe that completion had not occurred has varied with time. In her affidavit, as noted above, she said that MFS had told her that the date required to satisfy the mortgage offer "would not be met". This implies a conversation prior to the expiry of the offer, ie before 9 September. I do not accept that she was told by MFS that it would not be met, for the reasons given above. In her later witness statement Mrs Khan said (p 172 at para 22ff) that she was under the impression the mortgage offer was to expire on 9 September but had heard nothing from KL after returning the information pack, so went to Mr Miah to enquire. He received no response. MFS told her they had tried to chase KL but received no response and were concerned that she would not complete on time. She heard nothing and assumed the offer had expired. This account is not consistent with the fact that, as she admits, she had received the mortgage deed (and must have done so by 9 September at the latest) and changes fundamentally what MFS are said to have told her. In place of the definite statement that they had been told by KL that completion would not take place in time she now said they had heard nothing at all.

In her oral evidence, Mrs Khan gave a third version, which was that after the expiry of the mortgage offer "Kate" at MFS had told her that she had rung Mrs Powell to find out if the sale had been completed and been told that there had not been enough time to do so. Mrs Khan had therefore assumed it was too late to do anything further. She had not attempted to speak to Mrs Powell to confirm this or terminate her instructions. Such a conversation, had it taken place, would have been very important, since it would indicate that KL had given information by telephone that directly contradicted the letters appearing on their file immediately after completion, and provide a much firmer basis for having cancelled the direct debit. I do not believe it would have been omitted from her affidavit or witness statement. I note that her letters written on 20 October said only that MFS were "not aware" of completion, not that they had been positively told by KL that there had been no completion. She did not say in those letters that she had herself been told before the offer expired that completion could not take place in time, or that she had been told afterwards that it had not been possible to do so. I concluded that Mrs Powell invented the last account in the course of her oral evidence to bolster it up.

Her letter to Godiva says she expected completion by 7 September, but there was no basis for that. On her own account she cannot have received the mortgage deed until the 8th at the earliest and must therefore have been expecting completion would be after that. Her letter to KL gave as a reason for believing that completion had not occurred that she had not been asked to sign a deed of trust relating to the deposit, but there is no mention in the documents of any such deed ever having been discussed. When asked about this she said she thought it was something Mr Miah had said they would have to do, but on her account she cannot have mentioned it to Mrs Powell since they had never spoken and there was nothing about a trust deed in the information sheet she admitted sending to Mrs Powell. Both these reasons seem to me to be no more than excuses after the fact.

At various points Mrs Khan has said that although she did not make enquiries direct of Mrs Powell, Mr Miah at Markandan was dealing with the sale for the estate, that she had visited him and he had in her presence sent emails and made telephone enquiries to KL, but told her he had received no response. In her oral evidence she said she assumed that as the seller's solicitor he would have sent out a draft contract. One would also expect he might have sent letters to KL if Mrs Khan had told him they were acting for her. The documents disclosed from KL's file do not include any email correspondence at all, so it is not possible to say whether there may have been any from Mr Miah. There are no notes of telephone calls to or from him however, though some telephone attendances were recorded. There are no letters received from him.

Mr Miah's client in relation to the estate would be Mrs Khan's sister. A witness statement was served from her, in which she said (as Mrs Khan did) that Mr Miah had suggested the idea of a sale to a relative, and that Mrs Khan had agreed to assist. At para 9 of that witness statement (p 185) Raenna said "I was told in September 2009 that the purchase had not completed in time. Markandan & Co telephoned me and said that the sale had not gone through…".

If Mr Miah had throughout been acting for the estate attempting to achieve a sale of the property to Mrs Khan and to chase KL as her solicitors, only to have to report to his client that time had run out, he would be an important witness on Mrs Khan's behalf, and yet he was not called. His file could be expected to support that version, and would be available if not to Mrs Khan directly, to her sister who was supporting her case. It was not disclosed, nor was any explanation given as to why it had not been obtained. I note also that if Mr Miah had told Mrs Khan's sister that completion had not taken place, she could be expected to have passed this on to Mrs Khan, and yet no mention was made of it by Mrs Khan as a reason for cancelling the direct debit.

Further, Raenna Chaudhry herself did not appear as a witness at the trial. Her evidence might also have been expected to support Mrs Khan's case, if true. No mention was made of her inability to attend when Mrs Khan applied for an adjournment on the Friday before trial. I asked Mrs Khan at the end of her evidence whether she intended to call her sister, and she said that she could not attend as she had a bad back, and had done for some days. There was no medical or other evidence in support of that explanation, which she had not put forward previously. I do not accept that as a sufficient explanation.

In the circumstances I am satisfied that it is appropriate to draw inferences adverse to Mrs Khan from her failure to put forward the supportive testimony and documentary evidence that Mr Miah and Raenna Chaudhry could have provided to rebut the prima facie case, established from the documents on the KL file, that Mrs Khan was responsible for instructions to KL and would have known that completion had occurred by receiving KL's correspondence, see Wisniewski v Central Manchester Health Authority [1998] PIQR 324.

Mr Darby submitted that I should draw a similar inference in relation to Mrs Khan's knowledge of the false content of the mortgage application from the fact that Mrs Khan did not adduce any witness or documentary evidence from MFS or Mr Olujitan. She would have been entitled to obtain their files, which might have supported what she said about the transaction not having completed. However unlike Raenna and Mr Miah witnesses from MFS may have had a reason to be reluctant to assist her case inasmuch as it relied on their having made a fraudulent application despite having the correct information from her. Similarly, Mr Olujitan may have been reluctant to give evidence that he knowingly produced false accounts. In the circumstances I do not rely on any adverse inference in their case.

In my judgment, the explanation that Mrs Khan did not receive and was not aware of any of the letters sent by KL to 21 Trentham Row apart from the two she admits is not credible. Nor is it believable that all the telephone calls to Mrs Powell purporting to be from Mrs Khan were made, and that the contract and receipt documents appearing on KL's file were sent, by an imposter without any awareness on Mrs Khan's part. Mrs Khan suggested that all the documents on KL's file had been forged, but there is no evidence to support that.

I do not believe that she was not living at 21 Trentham Row at the material time; she has never said so before the trial and it was the address she gave for all purposes in all the contemporary documents. Her relatives Mussarat and Mazar Hussain may also have been living there, but she has not suggested any reason why they would have wished to conceal correspondence from her. She clearly did receive the letter of 7 September, and I did not believe her explanation that it included only the mortgage deed and not the contract, or that she would not have realised, as was obvious from the letter itself that there ought to have been two documents included. The closely interwoven nature of the telephone and written correspondence in the days running up to completion is in my view only realistically explicable on the basis that whoever was telephoning Mrs Powell and sending documents was receiving and responding to the correspondence that Mrs Powell sent out, with full knowledge of the proposed transaction, the mortgage application and offer, including its expiry date, and the involvement of MFS as brokers. It is overwhelmingly likely that that person was Mrs Khan, or someone acting with her.

It follows that it was either Mrs Khan, or someone acting with her, who told Mrs Powell that a deposit of £173,500 had been paid to Mr Chaudhry and provided receipts to that effect. Mrs Khan suggested that she would not have done so because she maintained that the "gifted deposit" was in effect a discount and meant that nothing had been paid, but it is not apparent from the documents that she has always used the term in that sense, rather than meaning a deposit actually to be paid from money provided by relatives. Mrs Powell was told on the telephone on 28 August, that "she does not at present have any ready cash as she has borrowed from friends and family and paid the seller so that he does not sell to anyone else…". That is not perfectly consistent with a gift, but it was no doubt an account that served at the time to emphasise the urgency, provide Mrs Powell with documentation for her file and could be explained as being what was meant by the "gifted deposit" referred to in the information sheet.

I also have regard to the evidence as to preparation of an entirely false set of accounts on Mrs Khan's behalf by Mr Olujitan. On her own account he had been her accountant for some time, and she had sent him the documents necessary to prepare her accounts. Either he did so faithfully from the information she sent, in which case that information must have been false, or he received correct information but for some reason produced fictitious accounts. Someone must have asked him to do so, either Mrs Khan or MFS. Someone asked him to write a letter referring to an unspecified intended loan, at or about the time that an application was being made to Godiva. This would be a risky thing for MFS to do if they were not well acquainted with Mr Olujitan so as to have reason to think he would agree, but it seems unlikely he was well known to the person who filled in the mortgage application as that person spelled Mr Olujitan's name incorrectly. If it was MFS, Mr Olujitan would have been likely to check with Mrs Khan before doing so. Even if it were supposed that he ran the risk of inventing a set of accounts without his client's approval, either Mr Olujitan or MFS sent a copy to Mrs Khan and she raised no alert about it. I do not believe she would not have looked at them when received, or noticed the unbelievable figures they contained if she did so. I conclude that it is much more likely that Mrs Khan knew and approved of the preparation of these accounts, and that they can only have been produced for some dishonest purpose, either in connection with a fraudulent application to Godiva or otherwise but in any event indicating that Mrs Khan is prepared to be party to such dishonesty.

Having considered all the evidence, my conclusion is that it is overwhelmingly likely that Mrs Khan was dishonestly involved throughout, that she was knowingly party to the fraudulent application to Godiva in that she either knew of the incorrect information given on the application and approved it, or authorised MFS to give any information they felt would secure the required offer, regardless of whether it was true. She either authorised Mr Olujitan to produce fictitious accounts in support of that application, or connived at his having done so. At some point, either originally or after the initial mortgage application was made, a scheme was devised to obtain the mortgage advance without losing any interest in the property, by conducting an apparent sale in the name of the deceased Mr Chaudhry. That required a change of solicitors, since Mr Miah was aware of the death. Accordingly KL and Kaihiva were instructed. I find that Mrs Khan was an aware of and actively participated in this scheme. It was she (or someone acting with her) who told KL that Kaihiva were now acting for the seller, and that the seller was Imtiaz Ahmed Chaudhry, notwithstanding she knew he was dead. It was she who signed the contract referring to the sale by Mr Chaudhry and to Kaihiva as his solicitors. It seems unlikely that Mrs Khan was the only participant, but the question of who else may have been involved is not before me and it would be inappropriate for me to express any view on that aspect.

It follows that I am satisfied that further substantive allegations of fraudulent misrepresentation against Mrs Khan are also made out. In particular the representation by the application form that there was intended to be a genuine sale of the property at £495,000, which was either false at the time of the application or subsequently became false to Mrs Khan's knowledge and was (dishonestly) not corrected, and the representations made to Mrs Powell (who for this purpose was Godiva's agent to receive them) that a deposit of £173,250 had been paid to Mr Chaudhry, that he had signed receipts for similar amounts, and that the seller of the property was Mr Chaudhry represented by Kaihiva. These were all false and made dishonestly in that Mrs Khan well knew that no deposit had been paid to anyone, no receipts had been signed and no contract could be made by Mr Chaudhry who was already dead. It cannot be doubted that Godiva relied on these representations, in the sense that they clearly would not have proceeded and made their advance if told that the representations were not true.

Mrs Khan is therefore liable for Godiva's losses flowing from the advance. Mr Carter's evidence for Godiva, which was not challenged, was that these consisted of the advance of £321,750, fees of £339.65 and £1127 paid to the valuer and MFS respectively and the cost of funding the advance, being £20,514 to the date of trial, and no doubt continuing.

As I have said, the claim pleaded against KL is not that they were parties to the fraud (although the witness statement of Godiva's solicitor Mr Sinnett in support of the freezing injunction stated his conviction that they were) but only that they were guilty of negligence and breach of contract, without which Godiva would not have made the loan. Mrs Powell who is or was the sole principal in KL has not provided any evidence. She told Mr Sinnett when he went to her office that she was shortly going back to Trinidad to see her elderly father, she had no business remaining and was looking to wind up her practice if she could not sell it (p87). I have no information about whether, if she did go to Trinidad, she ever returned, but she does not appear to have been contactable by her insurer's solicitors. The onus remains on Godiva to establish the necessary elements of its pleaded case by the evidence at trial, which was given by Mr Stewart Carter, an employee involved in the investigation of suspected criminal activities involving Coventry Building Society who was not involved in the original lending decision.

I should say at the start that there is nothing in any of the documents I have read from KL's own file that indicates to me that KL were actually aware of anything suspicious, let alone fraudulent, about the transaction they were dealing with. It must be borne in mind also that they were not provided (and would not have expected to be) with a copy of the mortgage application submitted to Godiva and so could not be expected to review the information given to Godiva or compare it with anything provided to them by Mrs Khan. It is not pleaded or suggested that KL were aware, or should have been aware, that the apparent seller Mr Chaudhry was dead, or should have taken any steps that they did not take to satisfy themselves of the identity of the person who gave them instructions by letter and telephone.

The allegations against KL are expressed in greatly extended terms in the Amended Particulars of Claim, but boil down to three points:

KL's defence, which has not been struck out, denies any obligation to report the matters complained of and further denies causation and loss, pleading that if further enquiries had been made of Mrs Khan satisfactory answers would have been given and that in any event if any of those matters had been reported to Godiva it would have made no difference as the advance would still have been made.

Mr Carter's witness statement states that Godiva relied on the Certificate of Title and Request for Advance provided by KL, that Mrs Khan's application was fraudulent in that it said she was the owner of 21 Trentham Row, had an income of £157,867 and no other residential or buy-to-let mortgages, and "Had [Godiva] known that the application submitted was fraudulent [Godiva] would not have advanced the mortgage." KL are not criticised in relation to the fraudulent application itself, since they had no knowledge of its contents. Mr Carter does not say that if Godiva had been advised of any of the three matters complained of against KL, they would have refused to allow the transaction to complete.

Taking the last point first, which is the one on which Mr Darby particularly relied, it would in my judgment be of obvious potential relevance to a lender if the price payable were in effect to be further reduced at exchange by the seller waiving an amount equal to KL's costs and disbursements so that the only funds passing at completion would be those from Godiva's advance. KL's instructions included the terms of the CML handbook, which require disclosure of anything which might reasonably be considered important to a lender, emphasised that the price must be the same as set out in the solicitors' instructions and required that any circumstances in which the solicitors would not have control of payment of the whole price should be reported. In my judgment, those instructions required that an arrangement of this sort should be reported to Godiva, and their instructions taken. A similar duty in tort would also have arisen.

However, there is nothing in Mr Carter's written evidence that says in terms that if this had been reported, Godiva would have refused to allow the matter to complete. I asked him what Godiva would have done if told that only £305,000 was to be paid to the seller on completion, and he replied that he could not say what their decision would have been. He said they would not have wanted to proceed if told that the purported deposit had not been paid at all, but that is not the same point and not what Godiva would have been told. He said "we took it that £495,000 was being paid and the deposit was being given by the family". Given that this was known to Godiva to be a family sale, with an apparently low loan-to-value ratio given the size of the "deposit" and the valuation of £525,000 they had received, it seems to me that it is not at all inevitable that Godiva would have baulked at a price reduction of £16,000 odd. Mr Carter's reply seemed to accept this.

So far as the alleged prior payment of a cash deposit of £173,250 is concerned, it seems to me that KL were under a similar duty in contract and tort to report that to Godiva, since it was not part of their instructions from Godiva. It would mean that the solicitors were not in control of the whole of the purchase monies, and in general terms is again a matter of obvious potential relevance to a lender. This would be so whether or not there was any discrepancy between Mrs Khan's written instructions that there was a "gifted deposit" and the receipts purporting to show that a deposit had been paid. KL's duty could not be affected by the fact that Mrs Khan told them Godiva were already aware of the arrangement- their duty to Godiva would be to report it in order to find out if this was the case or not. A breach of contract and of duty is thus established. It cannot however be assumed without evidence that if KL had done as they should, that would have led Godiva to refuse to proceed.

There was some confusion as to exactly what Godiva thought was happening in relation to the deposit. Mr Darby opened the case and questioned Mrs Khan on the basis that Godiva had interpreted the application form to mean that £173,250 would be paid, sourced from parents or relatives. That would be consistent with Mr Carter's oral evidence referred to above. He did not make any application to amend the pleaded case, which I note is that the mortgage application stated that the purchase price of £495,000 was being "discounted by £173,250", ie that that amount was not intended to be paid at all (incidentally, in accordance with Mrs Khan's position at trial). That would not however be consistent with what Mr Carter said. Nor is it in fact the case (notwithstanding that KL's defence admits the pleading on this issue) that the mortgage application stated that the price was to be discounted by that amount; as I have noted above it stated that the price was to be discounted without stating the amount of discount, and separately referred to a deposit of £173,250. No case was therefore put at trial on the basis that Godiva were anticipating that the price payable was only £321,750 and would have been alerted by the unexpected disclosure that an additional amount of £173,250 had been paid.

Putting the discrepancy at its highest, if Godiva's case were taken to be in accordance with Mr Carter's evidence and as Mr Darby advanced it, Godiva might have thought (they were not told expressly) that £173,250 would be paid at completion, whereas KL ought to have told them that according to their instructions from Mrs Khan, confirmed by Kaihiva, it had by then already been paid. Mr Carter's oral evidence did not go so far as to say that in that circumstance Godiva would have refused to lend, nor is that something that can in my judgment be assumed as inevitable. In the circumstances of a family sale with a substantial apparent security margin and an apparent confirmation from the seller's solicitors that the deposit had been paid, Godiva might well have been prepared to proceed.

In relation to the £5,000 difference between the amounts on the receipts and the amount of the deposit said to have been paid, while it appears that KL did not spot that difference, what they checked and had specifically confirmed by Kaihiva was that a total of £173,250 had been received. It is unrealistic to think that if they had enquired further, whether of Mrs Khan or Kaihiva or both, they would have been told anything other than that an additional £5,000 had been paid but not recorded by way of these receipts. Mr Carter's evidence does not show, and it is further unrealistic to think, that Godiva would have been concerned if told that there were only receipts for £168,250.

I conclude therefore that as against KL Godiva has established a breach of contract (and breach of duty in negligence) but not that it has suffered any loss thereby. The claim in negligence fails, while the claim in contract succeeds only to the extent of nominal damages.