LSC Finance Ltd v Abensons Law Ltd (t/a Abensons Solicitors)

A solicitor’s undertaking to confirm execution of security by a named borrower is construed objectively in its documentary, factual and commercial context. Where the undertaking clearly confirms execution by the identified borrower, it is not limited to a promise that the solicitor holds a document satisfying formal requirements, regardless of who signed it. Security requirements supplied before completion may form part of the relevant background and may confirm that construction. A different result may follow where solicitors are retained only to provide advisory services and the undertaking’s language does not clearly impose an absolute guarantee against a customer’s fraud.

A commercial lender advanced nearly £176,000 after receiving a solicitor’s undertaking concerning a legal charge and related security. The security was not effective because the transaction involved an imposture and fraud. The High Court gave judgment for the lender, finding breaches of undertaking, warranty of authority, trust and duty of care. The defendant solicitors sought permission to appeal, contending that the undertaking required only possession of a formally valid charge, not confirmation that the named borrower had actually executed it. Permission had been refused on paper, and the application was reconsidered orally by the Court of Appeal.

1. Application refused. The proposed appeal had no real prospect of success and there was no other compelling reason for the Court of Appeal to hear it.
2. A contractual undertaking is construed by identifying objectively what a reasonable person, with the available background knowledge, would understand the language to mean, having regard to its documentary, factual and commercial context.
3. The undertaking was clear. In consideration of the lender completing the loan to the defined borrower, the solicitors confirmed execution of the first legal charge by that named borrower in favour of the lender. It therefore required confirmation that the charge had been executed by the actual named borrower. It was not merely an undertaking to hold a charge complying with statutory formalities, whether or not that document had been signed by the borrower.
4. The lender’s property security requirements, including the requirement for an original validly executed security or an undertaking to that effect, formed part of the background and confirmed the natural meaning of the undertaking. The proposed construction would rewrite the undertaking rather than construe it.
5. Midland Bank Plc v Cox McQueen [1999] PNLR 593 was distinguishable. That case concerned solicitors retained by the bank for advisory and administrative services, in circumstances where the language did not clearly promise to answer for a customer’s fraud. Here, the solicitors acted for the borrowers, gave a clear undertaking directly to the lender, and assumed responsibility for confirming execution by the borrower.

• Court of Appeal (Civil Division): Permission to appeal had been refused on paper by Lewison LJ on 13 July 2015. On oral reconsideration, Kitchin LJ refused the application: [2016] EWCA Civ 274.
• High Court, Chancery Division: HHJ Hodge QC gave judgment for LSC on 11 March 2015 in the sum of nearly £176,000.