Promises about one’s principal: breach of warranty of authority and the case of P&P Property Ltd v Owen White & Catlin LLP

Introduction

If a solicitor executes a contract to sell “1 The Mall” that identifies the seller as “Mr Bloggs of 1 The Mall” (Mr Bloggs being the registered proprietor of that property), does the solicitor thereby promise to the buyer:

1. that she has authority to sell the property from the actual Mr Bloggs, the true owner of 1 The Mall? Or
2. that her client was someone who told her he was Mr Bloggs and that he owned 1 The Mall?

If the former, the solicitor assumes liability for the consequences of that promise being broken (i.e. for breaching her implied warranty of authority). That is, if the solicitor’s client was in fact an imposter, the solicitor would be liable to pay damages to put the buyer in the position he would have been in had the warranty been true. But if the latter, it is the buyer who would bear the consequences of the fraud.

This was one of the questions asked in the recent case of P&P Property Limited v Owen White & Catlin LLP and Crownvent Limited t/a Winkworth [2016] EWHC 2276 (Ch), heard by Mr Robin Dicker QC (sitting as a Deputy High Court Judge).

The Facts

In November 2013 an individual who said he was called Clifford Harper contacted Owen White & Catlin solicitors seeking their assistance in connection with his obtaining bridging finance secured on his property in Hammersmith, to enable his purchase of a property in Dubai (where he said he resided).

He attended Owen White & Catlin’s offices (he said he was over from Dubai) with copies of a passport and utility bills that appeared to confirm his identity. The solicitor in question, Ms Lim, was satisfied as to his identity and that she had discharged the relevant money laundering checks.

In turn Mr Harper (by which I mean the individual describing himself as such) told Mr Lim that he had changed his mind, and rather than obtain a bridging loan wished to sell the property, namely 52 Brackenbury Road, London W6 ("the Property").

At around the same time Mr Harper instructed Winkworth estate agents to find him a buyer willing to buy the property at short notice.

There were several interested buyers, but the successful offer came from the claimant, “P&P Property”, in the sum of £1.03m.

Contracts were duly exchanged (Mr Harper told Ms Lim to sign on his behalf), and the sale completed (or purportedly so) on 11 December 2013, with the purchase monies being transferred to a bank account in Dubai.

Not long after completion P&P Property engaged builders to commence stripping out works as part of their development of the Property.

On 17 January 2014 the real Mr Harper arrived at the Property and (as one might expect) asked the builders what they were doing (one suspects with fairly expressive language). It soon transpired what had happened, namely that a fraud had been perpetrated by an individual impersonating Mr Harper.

There was little hope of P&P Property recovering its purchase price from the fraudster (let alone consequential loss, including its liability to the real Mr Harper for the damage to his property caused by the building works). It therefore sued:

1. Owen White & Catlin, alleging breach of warranty of authority, negligence, breach of trust and breach of undertaking; and
2. Winkworth, alleging breach of warranty of authority and negligence.

This article discusses the claim for breach of warranty of authority against Owen White & Catlin.

The legal framework

When introducing his discussion of the relevant case-law, the Judge made the somewhat portentous observation that not all of the authorities were “entirely easy to reconcile” [69].

He went on to express the key principle at play:

“Where a person represents, by word or conduct, that he has authority to act on behalf of another, and a third party is induced to act in a way in which he would not otherwise have acted, the representor is deemed to warrant that the representation is true and is liable for any loss caused to the third party by a breach of that warranty.” [71]

But, as he went on to say, it is not always so simple:

“Complications arise, however, where the issue is not simply whether the agent had authority to act for a particular individual, but rather concerns the identity of that principal or his attributes. In such circumstances, the critical question is not whether there is a warranty of authority, but the precise terms of the warranty.” [73]

The Judge turned to consider perhaps the leading case in this field, Penn v Bristol & West Building Society [1997] 1 WLR 1356. In that case a husband defrauded the building society by purporting to sell to a co-fraudster the property he jointly owned with his wife. The sale did not complete (and the loan was not secured) because the husband had forged his wife’s signature – but only after the two fraudsters made off with the mortgage advance. The building society sued the conveyancing solicitors for breach of their warranty that they had authority from the wife. The case reached the Court of Appeal, where Waller LJ (with whom Waite LJ and Staughton LJ agreed) concluded that all the necessary ingredients were present for establishing that the solicitor had provided a warranty to the building society that the solicitor had the authority of Mrs Penn.

The Judge also considered Zwebner v The Mortgage Corporation Ltd [1998] PNLR 769, which similarly involved a mortgage fraud with a husband forging his wife’s signature. The issue in that case was whether the effect of this was to render a solicitor in breach of an undertaking that “all appropriate documents will be properly executed on or before completion.” The Court of Appeal held that it was.

However, the Judge did not consider that these authorities established any general rule:

“These cases do not, in my view, establish that any solicitor who acts for someone impersonating the true owner is necessarily liable for breach of warranty of authority. As Waller LJ said in Penn v Bristol & West, the question whether a warranty of authority has been given rests on a proper analysis of the facts in any given situation, and not on any preconceived notions.” [82]

To support this view, the Judge cited authorities where the claim against the solicitor failed. For example, in Excel Securities plc v Masood [2010] Lloyd's Rep PN 165 HHJ Hegarty QC dismissed the lender’s application for summary judgment in respect of its claim for breach of warranty of authority. He said that the solicitors in question had warranted no more than that they had authority to act “on behalf of the person identifying himself” as the owner. Likewise, in Stevenson v Singh [2012] EWHC 2880 HHJ Richard Seymour QC said at [99]:

"I incline to the view that in fact it is unarguable that a solicitor could give a warranty of authority which went further than that he had a client who had given the solicitor the name which the solicitor had identified to the opposite party."

As the Judge identified, the difference between these authorities and Penn is that in the former the solicitor had an actual client (albeit one who is impersonating someone else), whereas in Penn the solicitor acted for no-one going by the name of Mrs Penn: its only client was the husband, who himself purported to act with his wife’s authority.

As the Judge observed, however, this could be seen as a somewhat arbitrary point of distinction. As he rhetorically asked at [103]:

“why … should it make a difference whether, in Penn v Bristol & West, the husband had forged instructions from Mrs Penn or had found someone to impersonate Mrs Penn?”

Similarly, suppose instructions were given only by telephone. Should it make a difference if, rather than a co-fraudster, the husband himself impersonates his wife (or to make the example less farcical, a male co-owner)?

To further complicate the picture, the Judge also considered LSC Finance Limited v Abensons Law Limited [2015] EWHC 1163, where HHJ Hodge QC construed a solicitor’s undertaking to a mortgage lender that confirmed the execution of a charge by “the Borrower”. HHJ Hodge QC held at [101] that this constituted a warranty not that the solicitors had been authorised to act for a person purporting to be the borrower, but that they were actually acting for the borrower “who was the registered proprietor of the property being offered by way of security.”

The Judge’s decision

With these authorities in mind the Judge considered how they should apply to the facts of the case. Whilst he recognised the force of the claimant’s submission that, by signing the contract of sale on behalf of “Clifford Michael Phillip Harper of 52 Brackenbury Road, London W6”, Owen White & Catlin warranted that their client was the true Mr Harper, he nevertheless came to the conclusion that “it would be wrong to construe the reference in this way”.

To explain this conclusion, at [123] he said this:

“If the scope of any warranty of authority had been raised expressly, it is difficult to believe that either of the parties would have understood that Ms Lim was promising that she had authority from the true Clifford Harper, or that her client was the true Mr Harper.”

And at [124]:

“If Mr Blaker QC was correct to submit, in effect, that a solicitor who acts for someone purporting to sell a property thereby warrants that their client is the registered title holder, solicitors engaged in conveyancing transactions would effectively be guaranteeing that their client was the registered title holder, and would be strictly liable if this was not the case. I have not been referred to anything which suggests that this represents the position as generally understood amongst conveyancing solicitors or others involved in such transactions.”

Accordingly, the Judge dismissed the claim against Owen White & Catlin for breach of warranty of authority.

Analysis

In the very least this decision shows that the Judge was right to say, as noted above, that the authorities in this area were difficult to reconcile.  It is, however, not altogether easy to follow the Judge’s reasoning.

In the passage quoted above from paragraph 123 of the Judgment, the Judge held that neither party would have understood Ms Lim to be promising that she had authority from the true Clifford Harper. With respect, it is not wholly clear why this should be so. For surely the same point could have been made in any of the decisions where the claim against the solicitors succeeded? In LSC Finance the solicitors warranted that they were acting on behalf of “the Borrower”. On the Judge’s reasoning the lender in that case would only have understood this to mean that the solicitor had instructions from an individual purporting to be the borrower. But that was not how the case was decided: HHJ Hodge QC was clear that if a solicitor says that he is acting for ‘the borrower’, he means he is acting for the real person to whom the bank thought it was lending the money, not simply an individual holding himself out as such. (It is noted that Kitchin LJ refused permission to appeal against HHJ Hodge QC’s decision: [2016] EWCA Civ 274.)

Thus in the present case, it is hard to see why, when executing a contract to sell the Property, Owen White & Catlin’s implied warranty that it was acting on behalf of “Clifford Harper” should not be construed as a warranty that they were acting on behalf of the true Clifford Harper. To put it bluntly, the contract did not identify the seller as “a person going by the name Clifford Harper who claims to own the Property”.

Nevertheless, the Judge’s approach does have the clear support of, amongst other cases, Excel Securities and Stevenson v Singh, as well as (albeit perhaps less directly so) the line of authorities that leans away from the notion that a solicitor warrants his client’s attributes, solvency or ability to perform the contract in question. Moreover, there is as a matter of policy much to be said in support of the view that it is the contracting counterparty, rather than the fraudster’s agent, who should bear the risk of fraud just as they bear the risk of the transaction itself.

Conclusion

It is understood that permission has been granted to P&P Property to appeal the Judge’s decision. It is hoped that the Court of Appeal might find a way to reconcile the apparently conflicting authorities and provide better guidance on how to construe the solicitor’s warranty of authority. For otherwise there are likely to be many cases in future where the various victims of imposters go to court to argue about where the loss should lie.