Breach of warranty of authority & breach of undertaking- LSC Finance Ltd v Abensons Law Ltd (2015)

The court held that the defendant solicitor firm had acted in breach of undertaking and breach of warranty of authority, for failing to ascertain the true identity of a purported borrower who transpired to be a fraudster.

The defendant solicitors acted for a purported borrower, B, in relation to a mortgage transaction, and accepted as genuinely executed documents which in fact had been signed by a fraudster purporting to be B.  The claimant lender claimed, and the court accepted, that the defendants had acted in breach of undertaking, as they had given a pre-completion undertaking which, properly construed, required them to be in possession of a charge by way of legal mortgage over the subject property executed by B, and that possession only of a charge executed by an imposter impersonating B rendered the defendants in breach of that undertaking.  The defendants had accepted the risk of imposture, rather than this falling on the lender.  For the same reasons, the court considered it clear that the defendants should also be taken to have been warranting that they were duly authorised to act, not simply for a person purporting to be B, but actually for the B who was the registered proprietor of the property being offered by way of security.  The claim for breach of warranty of authority was therefore also made out.  The court also considered that the defendants had owed a duty of care to the claimant but declined fully to determine this issue (including issues of causation and loss), as the outcome of any argument as to negligence did not affect the result in the case.