Godiva Mortgages Ltd v Khan & Anor

A principal may be liable for fraudulent misrepresentations made by an agent acting within the agent’s actual or ostensible authority, even where the principal did not know the representations were false. The intended-victim exception applies only where the principal was herself a victim of the same fraud. A solicitor acting for a borrower and lender must report matters that may reasonably be important to the lender, including undisclosed payment arrangements and any reduction in the effective purchase price. Breach of that duty does not establish loss without evidence that the lender would have withheld the advance. Where causation is not proved, a contractual claim may attract nominal damages, while a negligence claim fails.

Godiva Mortgages Ltd advanced £321,750 for the purported purchase of a property by Sophie Khan. The transaction involved a forged contract and transfer in the name of a seller who had died, and the advance was paid to the seller’s solicitors without the existing mortgage being discharged.

Godiva alleged that Mrs Khan had fraudulently misrepresented matters in the mortgage application and during the transaction. It also alleged that Keepers Legal LLP had breached contractual and tortious duties by failing to report the alleged cash deposit, a discrepancy in the deposit receipts, and a reduction in the amount paid on completion. The central issues were Mrs Khan’s responsibility for the representations and whether KL’s breaches caused recoverable loss.

1. Mrs Khan’s liability. Mrs Khan was liable for fraudulent misrepresentation. MFS acted as her agent in completing the mortgage application. A principal is liable for a fraudulent representation made by an agent within the agent’s authority, even if the principal is personally innocent. The intended-victim exception did not apply because the fraud in the mortgage application was intended to obtain a mortgage for Mrs Khan’s benefit.
2. Mrs Khan was independently responsible because she signed a declaration confirming that the application was true and accepting responsibility for information completed by MFS on her behalf. She could not avoid that responsibility by asserting that she had not read the application.
3. The court found that Mrs Khan was knowingly involved in the fraudulent transaction. The false mortgage information, fabricated accounts, communications with KL, alleged deposit receipts and purported sale by the deceased owner formed an interconnected scheme. Godiva relied on the misrepresentations and was entitled to damages comprising the advance, associated fees and funding costs.
4. KL’s duties. KL owed Godiva contractual and tortious duties to report matters reasonably capable of being important to the lender. Those matters included the alleged payment of a substantial deposit directly to the seller and the effective reduction of the purchase price by the amount retained for KL’s costs and disbursements. The duty existed even though Mrs Khan said Godiva already knew of the arrangement.
5. KL failed to report both matters. However, Godiva did not prove that it would have refused to lend or prevented completion had it been informed. The family-sale context, apparent security margin and valuation meant that refusal was not inevitable. The alleged £5,000 discrepancy in the receipts did not establish causation or loss.
6. The claim against KL in negligence failed for want of proved loss. The contractual claim succeeded only to the extent of nominal damages.

Not stated in the judgment.