Friday Law Report: Absolute liability had to be clearly imposed

9 January 1999 Midland Bank v Cox McQueen (a firm) Court of Appeal (Lord Woolf, Master of the Rolls, Lord Justice Mummery and Lord Justice Mantell) 26 January 1999

WHERE A commercial institution wished to impose absolute liability on a member of a profession it should do in clear terms so that the professional could appreciate the extent of the obligation he was accepting.

The Court of Appeal dismissed the bank's appeal against the dismissal of its claim for damages against a firm of solicitors it had retained to obtain a signature on a mortgage.

Mr Dukes and his family company were customers of the bank. The bank increased the limit on the family company's overdraft, in return for which Mr Dukes deposited with the bank the deeds and conveyance of a property owned by his wife. He also deposited a letter of consent which purported to have been signed by Mrs Dukes but which had actually been signed by someone else.

Mr Dukes subsequently used a "desk valuation" of the property to persuade the bank to make him a loan, the security for which was an "all monies" security, which in-volved recharging the property.

The bank wrote on 18 March 1988 to the defendant firm, who had been nominated by Mr Dukes, retaining them to obtain the signatures of Mr and Mrs Dukes to various documents, including Mrs Dukes's signature to the charge. The charge contained a certificate to be signed by the solicitors, certifying that the contents and portent of the document had been fully explained to Mrs Dukes, and that she had signed it of her own free will.

The documents were returned to the bank apparently properly completed, with Mrs Dukes's signature having been witnessed by a legal executive of the solicitors. The bank paid the solicitors for their services.

Four and a half years later the bank sought to rely on their charge because Mr Dukes had stopped paying interest, and discovered that the charge had not been signed by Mrs Dukes, but by an impostor who had been introduced by Mr Dukes to the legal executive as his wife.

After an initial attempt to proceed against Mrs Dukes, the bank commenced proceedings against the solicitors and alleged, inter alia, non- performance by them of their retainer, on the basis that the terms of the letter of 18 March were unqualified.

Nicholas Stewart QC and Hugh Mercer (Gateley Wareing, Birmingham) for the bank; Alastair Norris QC (Pinsent Curtis) for the solicitors.

Lord Woolf MR said that the question in the instant case was whether the bank had intended to ask for and whether the solicitors had intended to give a promise to answer for the fraud of the customer even if that fraud could not be detected by exercising all proper care.

The answer to that question had to be no, unless the language used, looked at as a whole, indicated compellingly to the contrary. It was necessary in the present case to concentrate on the primary document, which was the letter of 18 March. Although it instructed the solicitors to obtain the signatures of Mr and Mrs Dukes, and to explain the implications of the mortgage to Mrs Dukes, such obligations were not likely to be absolute: they were better suited to a requirement to exercise a reasonable standard of care.

The court did not feel constrained by the decision in Zwebner v Mortgage Corporation (unreported, 18 June 1998), in which the obligation had been to "properly execute" the documents, and in which an undertaking rather than a certificate had been involved. A certificate should not be assimilated with an undertaking.

If commercial institutions such as banks wished to impose absolute liability on members of a profession such as solicitors they should do so in clear terms so that the solicitors could appreciate the extent of the obligation they were accepting. Unless the language used in a retainer clearly had that consequence, the courts should not be ready to impose obligations on solicitors which even the most careful solicitor might not be able to meet.

Kate O'Hanlon,

Barrister