Forged documents, hundreds of thousands of pounds and a missing "borrower"
Online peer-to-peer lender Social Money Ltd ("SoMo"), which offers bridging loans, advanced £775,000 to Linford Gayle – in what looked like a safe transaction through a mortgage broker. Gayle was the registered owner of two London properties. As proof of identity, SoMo received documents, including a driving licence and utility bills. Six-partner firm Attwells Solicitors LLP ("Attwells") acted for the borrower, while 750-lawyer firm JMW LLP ("JMW") represented the mortgage lender in the transaction. Attwells lawyer Philip Hewitt met the borrower face to face and confirmed that he had seen original documents.
However, while the bridging loan seemed to be just in the normal run of business, in July 2022 everything became a lot less vanilla.
Attwells received a call from a Mr Gayle to question why his mortgage on one of the London properties had been redeemed without his knowledge. Startled, the law firm started investigations which confirmed that ‘their’ borrower was, in fact, an imposter. By this time, the loan funds had been disbursed, and the fraudster was long gone.
SoMo initiated legal action against Attwells, alleging:
- Breach of contractual undertakings: SoMo claimed that Attwells failed to fulfill obligations, including registering of SoMo’s charge as a first legal charge over the properties and using the loan advance solely for specified purposes.
- Breach of trust: SoMo argued that the loan funds, held in Attwells’ client account, were released in breach of trust.
Attwells fought the claims, asserting that it had acted in accordance with the terms of the undertakings and was not responsible for the borrower’s fraudulent actions. Additionally, Attwells launched something called a Part 20 claim against SoMo’s lawyers, JMW, saying that the firm was at least partly to blame for approving the dodgy documents.
The High Court was asked to determine whether SoMo’s claims could be summarily resolved or required a full trial. Key issues included:
- Ambiguity in contractual terms: The undertakings given by Attwells referred to the "transaction" and "completion", terms which lacked precise definitions. This ambiguity made the case unsuitable for summary judgment.
- Trust and breach: The court acknowledged that funds held in solicitors’ client accounts are held on trust but deferred deciding whether Attwells had breached that trust. The determination of whether Attwells had exceeded its authority in releasing funds depended on the interpretation of the undertakings – meaning legal arguments were needed.
- Section 61 of the Trustee Act 1925: Attwells sought relief from liability, arguing that it had acted honestly and reasonably. The court again decided that this was worth a legal argument.
What this means for lender SoMo is that the case will grind on – and it still doesn’t know if, or how much of, its loan it will be able to recover.
