LSC Finance Ltd v Abensons Law Ltd

A solicitor’s undertaking to confirm execution of an original, validly executed security may require the solicitor to hold security genuinely executed by the identified borrower, rather than by an imposter. Where a lender reasonably relies on such an undertaking, the solicitor may also warrant authority to act for the actual proprietor and assume a duty of care to the lender. Money advanced only for the purpose of completing a secured loan may be subject to a Quistclose trust where the circumstances objectively restrict the recipient’s freedom to deal with it. Breach of the undertaking and warranty, and breach of trust, may establish liability even where causation in a concurrent negligence claim remains unresolved.

LSC Finance Ltd advanced £169,000 for a secured bridging loan intended to be secured by a legal charge over property owned by Mrs Gail Boddice and guaranteed by her husband. Abensons Law Ltd acted for the purported borrowers and gave undertakings to LSC’s solicitors confirming execution of the charge and promising registration.

The purported borrowers were imposters. The charge and subsequent transfer were not genuinely executed by the registered proprietor, and the money was released without effective security. LSC claimed for breach of undertaking, negligence, breach of trust and breach of warranty of authority. The central issues were the construction of the undertaking, whether a warranty and duty of care arose, and whether the advance was held on trust.

1. Judgment for the claimant. The claims for breach of undertaking and breach of warranty of authority succeeded. The claim for breach of a Quistclose resulting trust also succeeded. The court made no final determination of causation or damages on the negligence claim.
2. The undertaking had to be read with the property security requirement that Abensons must hold an original, validly executed security before completion. Properly construed, it required Abensons to hold an original legal charge genuinely executed by Mrs Boddice, not merely by a person purporting to be her. The risk of imposture therefore fell on Abensons rather than the lender. The reasoning in Zwebner v The Mortgage Corporation Ltd [1998] PNLR 769 was particularly persuasive and the case was materially different from authorities concerning narrower retainers or certificates.
3. Because the undertaking was construed in that way, Abensons warranted that they were authorised to act for the actual registered proprietor. The warranty of authority extended beyond authority from a person using the borrower’s name.
4. The lender’s communications and the undertakings objectively restricted Abensons’ freedom to deal with the money. The advance was provided only to fund a loan secured by a valid charge. A Quistclose trust consequently arose, and releasing the money before the purpose could be achieved constituted a breach of trust. Relief under section 61 of the Trustee Act 1925 was unavailable because Abensons had not acted reasonably or honestly.
5. Abensons also owed LSC a duty of care because LSC, through its solicitors, reasonably relied on the undertakings and Abensons assumed responsibility for their accuracy. That duty was breached by failing adequately to verify execution. However, the court left open whether causation required proof on the balance of probabilities or whether a real and substantial chance test applied. The issue did not affect the outcome because the other claims succeeded.