Partner not liable for £2.5 million fraud

Posted: 15th February 2013

street with officesA partner in a professional firm whose colleague engaged in a £2.5 million mortgage fraud was not liable for his misdeeds. A mortgage lender’s arguments that, on a correct interpretation of the Partnership Act 1890, the woman could be fixed with responsibility for its losses were rejected by the Court of Appeal.

The fraudster had borrowed £2.5 million from a bank supposedly on the security of five mortgages. He used his professional skills to overcome the bank’s precautions and represented to the bank that the conveyancing work was being performed by his partner. In each case, he forged his partner’s signature on certificates of title. The bank had obtained a ‘worthless’ £2.4 million judgment against the fraudster.

The bank argued that, under section 14 of the Act, the woman had ‘knowingly suffered to be made’ representations to the bank that she was a partner of the fraudster in the relevant firm and that, on the faith of such representations, credit had been extended to that firm.

Dismissing the bank’s appeal against a first instance decision to like effect, the Court of Appeal noted that the transactions had in fact been executed by the fraudster acting as a sole practitioner under the same name as the partnership. The heading of letters used to communicate with the bank had not mentioned the address from which the woman practised professionally.

The distinction that the bank sought to make between ‘authorising’ a representation, rather than ’knowingly suffering’ the same to be made, was ‘a semantic point of no substance’, the court ruled. The woman had never suffered the fraudster to represent to the bank that she was his partner in the conduct of the practice through which he carried out the transactions.