Fraudsters are by their very nature tricky customers. Lenders need to know who they are instructing on loan transactions to ensure they do not become an innocent party without any redress where a fraud is committed on them.

This was the outcome in UCB Home Loans Corporation Ltd v Soni and Soni & Co (A firm). UCB had advanced £2.5 million to Soni to be secured on five properties. In breach of UCB’s instructions, Soni (a solicitor) handled the conveyancing himself through his sole practice at X address. Soni also had another practice (of the same name) of which K was a partner and which carried on business at G address (and other addresses), but never at X address.

In order to give the impression of complying with UCB’s requirements, Soni fraudulently advised UCB that K was undertaking the conveyancing and that she was a partner with him at X address, where the matter would be dealt with. Soni forged K’s signature on the relevant documents. K knew nothing about the representations made by Soni. The loans were fraudulent and there was no security. UCB obtained a worthless judgment against Soni.

The issue was whether K was also liable under the Partnership Act 1890 on the basis that K had been held out to the claimant as Soni’s partner? UCB argued that the general letterhead of Soni & Co established that K knowingly suffered herself to be represented to the outside world as a partner with Soni, operating from a number of different premises – albeit that X address did not feature among those addresses. It had therefore been led to believe that there was a single business consisting of Soni and K and that was the firm it had been dealing with for the purposes of the conveyancing.

The Court of Appeal found K not liable. The only representation made and relied upon by UCB, was that K was a partner with Soni at a practice at X address. To be liable, K had to have knowingly suffered that representation to have been made. That required K to know the representation was being made and was able to prevent it being made or could correct it, but had not done so.

Soni had made the representation, not K. K knew nothing about it. K had held herself out as a partner (although never to UCB) at other addresses, but not at any time as a partner at a practice at X address. K was not liable to UCB under the Partnership Act.

Things to consider

Where fraud has been committed, the court often has to determine which of two innocent parties has to bear the consequences of the fraudulent activities. Here, due to the lack of representation made by K, it was the lender.

http://www.wragge.com/analysis_9712.asp#page=1