Imposter fraud and solicitors' undertakings

In the case of Social Money Ltd v Attwells Solicitors LLP & Anor [2024] EWHC 3288 (Ch) (17 December 2024), the High Court dismissed a claimant lender’s application for summary judgment and refused to strike out the defendant solicitors’ defence, where undertakings they had provided to the lender were ambiguous and their true meaning was therefore a triable issue.

In doing so, the High Court highlighted the importance for lenders of obtaining clear undertakings so that these are not susceptible to more than one potential meaning.  Their true construction is of course yet to be determined, and this case is one we will be watching with interest as it progresses towards a full hearing.

The decision also serves as a reminder that breach of undertaking claims are not always as clear cut as they may first appear, and that the Courts will often (in accordance with White Book guidance) refrain from striking out a statement of case if it may be possible to cure any pleadings defect by amendment.  These points should be considered before committing significant time and costs to an application for strike out and/or summary judgment.

We have set out a summary of the background to the case and the key points from the judgment below.

Background

The Claimant, Social Money Limited (SoMo) is a bridging lender.

An imposter, pretending to be a Mr Linford Gayle (the Imposter) approached SoMo seeking a bridging loan of £775k to be secured by way of a remortgage over 2 properties in London already owned by Mr Gayle.

The solicitors engaged by the Imposter (Attwells) confirmed the customer’s identity, including obtaining certified evidence of the customer’s residence and identity. Mr Hewett of Attwells met with the customer in person and confirmed to SoMo that he was satisfied that the customer who signed the documentation was the true owner of the properties.

While SoMo was separately represented by their own solicitors (JMW), Attwells gave undertakings (prepared by JMW) to SoMo as part of the transaction which SoMo relied on in advancing the loan, in particular:

- “To use the loan advance solely for the Transaction” and

- "Within 5 working days of completion to effect at the Land Registry against the title numbers of [the properties]:

a. the registration of the Charge as a first legal charge;
b. The removal of all references to the Existing Charge”

Following the transaction, it emerged that the customer was in fact an imposter / the Imposter.

SoMo issued proceedings against Attwells for specific performance of certain of the undertakings provided by Attwells to SoMo, alternatively, damages and / or compensation for breach of undertaking and breach of trust in relation to the handling of the loan funds.

In their defence, Attwells argued that they had not breached the undertakings and that the wording of the undertakings should be construed narrowly.  They also pleaded that there was no breach of trust or alternatively that they were entitled to relief under s.61 of the Trustee Act 1925 on the basis (jn short) that they acted honestly, reasonably and ought reasonably to be excused. 

SoMo applied for summary judgment against Attwells for breach of trust and enforcement of two of the contractual undertakings given, and/or for strike out of Attwells’ Defence.

The Judgment

Breach of undertaking

Master Pester found that the case put forward by Attwells on construction of the undertakings was properly arguable, particularly in relation to the meaning of “the Transaction” (it did not expressly provide for SoMo obtaining valid security over the property) and the requirement of registration of the Charge within 5 working days (Attwells argued that registration was not required, but simply to make the application).  

The Court also took a negative view of the failure by SoMo solicitors, JMW, to disclose their file, since this could have supported one or other of the parties’ suggested construction of the undertakings.  

As it was, however, the interpretation of the undertakings was not capable of being dealt with on a summary basis.

Breach of trust

The Master found that the breach of trust summary judgment application also failed, as the terms of the trust are in turn determined by the undertakings, which as discussed above were considered to be ambiguous and not suitable for summary disposal.

The Master also considered that a defence based on s.61 was potentially available to Attwells, notwithstanding their failure to provide sufficient particulars in their Defence as to why they ought to be excused (if a breach of trust was established at all).  The Master’s preliminary view was that Attwells should be afforded the opportunity to further particularise why s.61 relief should be granted (if required).

The potential availability of a s.61 defence was a further reason the Master was not minded to decide the matter on the basis of the strike-out/summary judgment application.  

What does this mean?

This decision highlights the importance for lenders of ensuring that undertakings (whether granted by their own, or their borrower’s, solicitors) are clear and leave no room for an alternative construction.  Ambiguous undertakings are not only more likely to lead to losses being suffered in the first instance, but will also be harder/take longer to enforce as the Courts are unlikely to deal with them on a summary basis.

The route to recovery in an imposter fraud case is likely to be a breach of trust claim against the professionals involved following the decision in Dreamvar (UK) Ltd v Mishcon de Reya [2018] EWCA Civ 1082. However, the present case is another example of the procedural and evidential 

challenges of bringing a summary judgment application in a breach of undertaking/breach of trust claim. For another very recent example, see the decision handed down on 13 January 2025 in the Part 20 claim by 4 Fairweather Close Limited and others v Crimson Phoenix Solicitors and The Wilkes Partnership LLP [2025] EWHC 19 (Ch).

Lenders need to be mindful of these decisions and, where a strike-out/summary judgment application is being contemplated, test their advisers on the prospects of success of such an application on the basis of the pleadings and evidence available at the time. 

Our national Professional Negligence team is highly experienced in dealing with lender claims against a range of professionals including solicitors, valuers and project monitors.  If you would like to discuss any of the issues raised in this Insight, please do get in touch.

Contributor: Elena Luca