Undertakings and summary judgment

The recent decision in the case of Social Money Limited v Attwells Solicitors LLP [2024] EWHC 3288 (Ch) provides some interesting considerations on a number of matters relating to the giving of undertakings and attempts to seek to obtain summary judgment in that regard.

The facts

The facts will be relatively familiar. A fraudster masqueraded as a genuine property owner and borrower. He obtained a mortgage offer from the lender (Social Money Ltd (SoMo) for the sum of £701,500 (net of fees) to be used to redeem an existing first charge and to provide a significant sum of money for the borrower by way of a short term bridging loan. Attwells were instructed by the borrower and JMW solicitors acted for SoMo. A number of identity checks were required and carried out not only by Attwells but also by an independent firm of solicitors. Face to face checks were carried out.

Attwells provide a number of undertakings (which we do not set out in full) specifically confirming:

In consideration of the provision of the loan facilities by the Lender to the Borrower for the Borrower's business purposes ("the Transaction"), we undertake to you as follows:…

…to use the loan advance solely for the Transaction…

…within 5 working days of completion to effect at the Land Registry against the title numbers …the registration of the Charge as a first legal charge…

The term 'Borrower's business purposes' was not defined.

In short, the borrower turned out to be a fraudster, £60,757 was used to redeem the existing mortgage secured against the property but the balance of c. £640k was sent to the fraudster.

SoMo then issued proceedings against Attwells and sought summary judgment on the basis the claim for breach of contractual undertaking and for breach of trust was indefensible.

The outcome of the hearing

The Judge refused the application for summary judgment on the basis that there were significant questions over the interpretation of the undertaking – Attwells argued that since the undertaking did not specify that the Borrower was 'the owner of the properties' and that it was not specified that the money could only be used for the business purpose of the owner of the properties. There was therefore a triable issue over the interpretation of the contractual undertaking. Attwells suggested that they were entitled to send the monies to the borrower who was in receipt of a mortgage offer from SoMo and for whom they were acting. There were further arguments over whether the application to register had to be made in 5 days or whether registration had to occur in 5 days – the undertaking was clearly ambiguous.

It was accepted that the monies were held on trust but the Judge indicated that the terms of the Trust were not wider than the terms of the undertaking and as such, again, there was an issue suitable for trial.

Commentary

1. The parties all accepted that there was no right to seek summary judgment on the undertakings under the Court's inherent jurisdiction, given the Supreme Court's decision in Harcus Sinclair v Your Lawyers Ltd ;
2. When an undertaking is requested, the party requesting it should be absolutely clear as to what they are trying to achieve and ensure clarity in the terms of that undertaking, to give a party the very best chance of a summary enforcement of the undertaking at an SJ hearing;
3. The summary judgment procedure is not going to be successful where there are substantive construction issues and where the defending party can demonstrate a real rather than fanciful chance of success;
4. It is established law that holding money in client account will mean that money is held on trust but the terms of that trust are unlikely to exceed the obligation set out in the undertaking.

If/when this case makes it to the full trial, it will be very interesting to see how the law on undertakings develops further.

For further information on the issues raised in this article please contact Jo Makin or Will Sefton.