Cheshire Mortgage Corporation Limited+blemain Finance Limited V. Morna Grandison (judicial Factor On The Estate Of Longmuir & Co)+balfour & Manson Llp
| Jurisdiction | Scotland |
| Judge | Lord Clarke,Lord Mackay of Drumadoon,Lord Bonomy |
| Judgment Date | 05 September 2012 |
| Neutral Citation | [2012] CSIH 66 |
| Court | Court of Session |
| Published date | 05 September 2012 |
| Docket Number | CA100/09 |
| Date | 05 September 2012 |
| EXTRA DIVISION, INNER HOUSE, COURT OF SESSION | |
| Lord Clarke Lord Mackay of Drumadoon Lord Bonomy | [2012] CSIH 66 CA100/09 and CA103/09 OPINION OF THE COURT delivered by LORD CLARKE in the reclaiming motion by CHESHIRE MORTGAGE CORPORATION LIMITED Pursuers and Reclaimers; against MORNA GRANDISON (JUDICIAL FACTOR ON THE ESTATE OF LONGMUIR & CO) Defender Respondent: and in the reclaiming motion by BLEMAIN FINANCE LIMITED Pursuers and Reclaimers; against BALFOUR & MANSON LLP Defenders and Respondents _______ |
Defenders and Respondents: A Young QC; Duncan; bto
5 September 2012
[1] These two actions raise the same question arriving out of the law of agency. In the Cheshire Mortgage Corporation Limited ("CMC") case a separate point also arises as to the meaning and effect of a letter of obligation.
[2] After proof before answer the Lord Ordinary, Lord Glennie granted decree of absolvitor in both actions. The facts found, in both actions, reveal a striking resemblance. The pursuers and reclaimers in both cases belong to the same group of companies known as the Blemain Group. Both companies are in the business of secured lending. They lend both to individuals and corporate borrowers against security provided by the borrowers, normally in the form of a standard security over heritable property. The respondent in the CMC action is the judicial factor appointed to the estates of a firm of solicitors known as Longmuir & Co who acted in the security transaction to which the action at the instance of CMC relates. The respondents in the action at the instance of Blemain Finance Limited ("BFL") are Balfour & Manson LLP a firm of solicitors who acted in a security transaction with which the action at BFL's instance is concerned. In each case the respondents have been the victims of mortgage fraud. The frauds perpetrated upon them as a result of fraudsters, each of the reclaimers involved two different pairs of individuals applying for a loan, pretending to be husband and wife who were owners of heritable property which was to institute the security for the loans.
[3] In the CMC case Messrs Longmuir & Co were instructed by the borrowers to prepare the appropriate standard security in favour of CMC in return for CMC lending money to them. In the BFL case Messrs Balfour & Manson were instructed by the borrowers to prepare the appropriate standard security, in favour of BFL Both firms of solicitors then engaged with Messrs Mellicks Solicitors, acting for the lenders, in relation to the execution of the standard securities. In both cases the couple, who turned out to be fraudsters, executed pretended standard securities over the heritable properties which they claimed they owned. The reclaimers in each case advanced the loans in the belief that the borrowers owned the subjects in respect of which the standard securities had been granted. The fraudsters, in the event, have disappeared. The reclaimers have been unable to recover the sums advanced. It was not contended on behalf of the reclaimers, nor was it found by the Lord Ordinary, that either Messrs Longmuir or the respondents in the BLF case had acted in anything other than good faith or that they had not understood that the borrowers had title to the subjects over which they granted the pretended securities.
[4] In the present proceedings, both sets of reclaimers sue the respondents for loss which they aver they suffered through the respondents' breaches of their warranty of authority. In the CMC case the reclaimers sue the respondents for their losses also on the basis of the alleged breach of a letter of obligation granted by Messrs Longmuir & Co. In neither action do the reclaimers seek to recover their losses on the basis of any negligence or other breach of duty on the part of the respondents.
CMC v Morna Grandison Judicial Factor to the estate of Longmuire & Co - the factual position
[5] The more detailed facts in relation to the two transactions, which form the basis for these actions, are set out fully in the Lord Ordinary's opinion to which reference is made. It is sufficient to highlight certain of these matters for the purposes of disposing of these reclaiming motions.
[6] In the CMC case the fraudsters presented themselves as Christopher Paul Cheetham and Mrs Juliet Cheetham of 34 Danube Street, Stockbridge, Edinburgh, EH4 1NT. They made an application for a loan on or about 20 October 2004, initially through a broker. The amount of loan being sought by them was £350,000. The purpose of the loan was said "to assist the purchase of overseas property". On 27 October CMC issued an offer letter addressed to Mr and Mrs Cheetham, referred to as "the Borrowers". The terms of the loan were set out in the letter. The offer letter was signed for acceptance on 2 November by "Mr and Mrs Cheetham". On 1 November, the day before signing the acceptance of the offer letter, the fraudsters, again representing themselves as Mr and Mrs Cheetham, wrote to CMC on writing paper headed with the address 34 Danube Street, Edinburgh to confirm that the monthly payments in the respect of the loan were affordable by them. On 5 November 2004 CMC received from DM Hall, Chartered Surveyors, a mortgage valuation report dated 3 November over subjects at 34 Danube Street. The report stated that the property had been inspected on 2 November and the valuation was in the sum of £600,000. In a subsequent telephone conversation on 23 November 2004 Messrs DM Hall confirmed the value of the subjects, if a sale had to be effected within 90 days, to be £575,000. The Lord Ordinary at para 16 of his opinion states:
"It is clear that the CMC were provided with a number of documents purporting to confirm the identity and address of the borrowers. They received a BT bill addressed to Mr C.P. Cheetham at 34 Danube Street, a Scottish Power payment reminder similarly addressed, a Scottish Gas bill addressed to Mrs J Cheetham at that address, a driver's licence in the name of Christopher Paul Cheetham at that address and a driving licence in the name of Juliet Cheetham also at that address."
The Lord Ordinary reached the conclusion that all of that material had come to CMC from the broker or from the fraudsters themselves.
[7] The Lord Ordinary at para 17 of his opinion held, on the facts, that the representatives of CMC, apart from any matter arising from question of implied warranty of authority, had no specific basis for believing that the solicitors appointed by the borrowers were giving an assurance that their clients were who they said they were or that they lived where they said they lived.
[8] Messrs Mellicks Solicitors were instructed to act on behalf of CMC in the loan transaction. They were sent an instruction letter on 8 November 2004 from CMC which identified the borrowers as Christopher Paul Cheetham and Julie Cheetham with a correspondence address at 34 Danube Street, Edinburgh, which was also given as their security address. The borrowers' solicitors were identified in this document as Longmuir & Co. The instructions contained in the document issued to Mellicks on 8 November contained inter alia the following:
"A Matters specific to this transaction
1. Please note we wish to take a 1st charge over the property.
2. Please check and confirm that the property is in the sole name of Christopher Paul Cheetham and Juliet Cheetham.
3. Please check and confirm when the customers purchased the property and for how much. Please revert this information back to us...."
Under the heading "B Standard instructions" there appeared as follows:
"11. Please check and confirm that there is nothing that would adversely affect our security on any of the searches.
12. Please liaise with client's solicitor to ensure that the client is fully aware of the legal implications of signing the loan agreement forms.
13. Please contact the clients' solicitor as soon as possible and keep us updated at all times...."
The instruction letter to Messrs Mellicks noted that a copy of the borrowers' identification documents and a copy of the valuation of the property over which the security was to be taken would follow.
[9] On 24 November a formal mortgage offer was issued by CMC. It named the borrowers as Mr and Mrs Cheetham and the address of the property to be mortgaged as 34 Danube Street, Edinburgh. The offer, which was valid for three months, was for a loan for one year of £350,000 plus £4,868 in fees to be added to the loan, and contained details of the repayment schedule. The value of the property was noted as £600,000. It was a term of the mortgage offer that the loan be secured by a first mortgage over the property in the form of the draft standard security accompanying the offer. Messrs Mellicks were to be involved in the obtaining of the standard security and were instructed to liaise with the borrowers' solicitor for that purpose.
[10] On 25 November 2004 Mellicks wrote to CMC in the following terms:
"Dear Sirs
Mr & Mrs Cheetham
34 Danube Street, Edinburgh
Reference: CH04112201800
We write to advise that we have will (sic) receive the Credit Agreement signed by Mr & Mrs Cheetham the Standard Security duly signed together with a Standing Order Mandate on Friday 26th November 2004. We confirm that they are in order. We have had sight of the necessary Searches in respect of the properties. Nothing is disclosed that would adversely affect your security...".
The sum of £354,868 was transferred by CMC to Mellicks on 26 November 2004. On 30 November Mellicks then sent to Longmuir & Co a cheque in that amount, less certain fees, which was to be held as undelivered, pending confirmation that Longmuir & Co had executed the documentation and would deliver that documentation along with the title deeds and their letter of obligation by return.
[11] The fraudsters met a representative of Messrs Longmuir & Co, Mr Martin...
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