Lexi Holdings (In Administration) v Pannone and Partners

On a summary judgment application, the court applies a reality test, not a balance-of-probabilities test. A party resisting judgment must show a real, rather than fanciful, prospect that evidence presently unavailable will become available and prove its case at trial.

Contractual obligations to pay receipts into a specified account are construed by reference to the agreements as a whole, including related security provisions. A bank’s repeated failure to enforce an obligation does not necessarily amount to variation, waiver or estoppel.

A managing director ordinarily has usual authority to instruct the company’s solicitors to pay company money held in client account. Mere negligence in failing to inquire about an instruction which appears commercially unwise may not defeat apparent authority. The position is different where the solicitor knows, or deliberately disregards, facts showing that the instruction is unauthorised or made for the director’s personal benefit.

Lexi Holdings, in administration, claimed equitable compensation or damages from its former solicitors, Pannone and Partners, for payments made from client account on the instructions of Lexi’s managing director, Shaid Luqman.

Lexi sought summary judgment on two issues. First, it argued that facility agreements required all receipts connected with its customer lending, including redemption proceeds from loans funded by its own resources, to be paid into a Barclays receipts account. Secondly, it argued that Luqman lacked actual or apparent authority to instruct the payments, particularly payments into an account at Lloyds TSB.

The court had to decide whether those issues could be determined without a trial, applying the principles governing summary judgment under Civil Procedure Rules 1998 Part 24.

1. Summary judgment principles. The court applied the reality test. The question was whether Pannone had a real, rather than fanciful, prospect of proving at trial that presently unavailable documents would prove variation or waiver. The court was not required to decide whether such evidence was probable.
2. Construction of the facility agreements. The agreements required all amounts received under or in connection with the documentation governing Lexi’s loans to customers to be paid into the Receipts Account. That obligation was not limited to loans funded by Barclays or the lending syndicate. The definitions of Bridging Loans and Customers contained no funding-source limitation, and the related charge extended to all loan receivables.
3. Variation and waiver. Pannone had no more than a fanciful prospect of proving that the contractual obligation had been varied or waived. The agreements repeatedly restated the obligation and required variations to be in writing. Evidence that Barclays often failed to enforce the obligation, or permitted receipts to be paid into Lexi’s current account, gave Pannone a real prospect of proving non-enforcement, but not a real prospect of proving that the contractual right had been surrendered.
4. Authority to make payments. Luqman had no actual authority to use Lexi’s money to defraud the company. However, a managing director ordinarily has usual authority to instruct the company’s solicitors about money held in client account. The authorities did not establish that mere negligent failure to inquire, where the instruction appeared to concern company business, was enough to defeat apparent authority. Whether Pannone knew, or deliberately shut their eyes to facts showing lack of authority, was unsuitable for summary determination.
5. Payments into the Lloyds TSB account therefore remained for trial on apparent authority. Payments to other solicitors and to Mr Denney likewise did not show sufficient abnormality or suspicion on the pleaded case to justify summary judgment. Lexi obtained summary judgment only on the construction issue. Pannone’s cross-application had been abandoned and remained relevant only to costs.