Analysis
Abbey National Building Society (now Santander UK PLC) (A) agreed to lend £150,000 to an individual (V) for the purpose of purchasing a property subject to taking a first legal charge. RA Legal Solicitors (R) conducted the conveyancing, acting for both V and A. The vendor’s solicitors (S) were a real firm but acted dishonestly falsely representing that they acted for the vendor. On 17 July 2009 A transferred £150,000 (plus fees) to RA’s bank account. S notified an account to which the completion monies should be sent and on 28 July 2009 S purported to exchange and complete and RA arranged for the completion monies to be transferred to the account nominated by S (initially to be held to order, but subsequently released). Completion did not take place. S produced forged documents, and A did not obtain a first legal charge. A sued RA for repayment of the advance on the grounds of breach of trust, alternatively damages for professional negligence. The main issues at trial were (1) whether RA acted in breach of trust when they transferred the funds to S’s account, and if so whether it caused AN loss, and (2) whether RA could rely on the statutory defence under s61 Trustee Act 1925 on the basis that it acted honestly and reasonably and ought fairly to be excused. A acknowledged that if they did not succeed on the breach of trust claim, they could not expect to succeed on their damages claim.
Held
RA acted in breach of trust in releasing the funds advanced by A to S, but were relieved of all liability in respect of their breach. Damages claims dismissed [74].
- 1) RA acted in breach of trust in releasing S from its obligation to hold the money to order against documents which were forgeries. This was tantamount to transferring the monies away without authorisation [62]. A number of criticisms of RA’s conduct were considered but the loss suffered by A had no connection with the criticisms [64]. It was common ground that the advance received by RA from A was impressed with a trust to be held for A ‘until completion’. ‘Completion’ meant the completion of a genuine contract by way of an exchange of real money in payment of the balance of the purchase price for real documents that would give the purchaser the means of registering the transfer of title to the property [47]. Further, a trustee who wrongly paid away trust money, like a trustee who made an unauthorised investment, committed a breach of trust and came under an immediate duty to remedy such breach [49].
- 2) Three conditions had to be satisfied under s61 Trustee Act 1925: (i) whether RA had acted honestly – this was not in issue, (ii) whether RA acted reasonably, and (iii) whether they ought fairly to be excused for the breach of trust [65]. Acting reasonably did not predicate that the solicitor had necessarily complied with best practice in all respects. This approach was similar to that adopted in cases concerning 727(1) of the Companies Act 1985. Of course s61 of the Trustee Act, 1925 did not specifically refer to the trustees being liable for negligence, but this was not a reason for giving a different interpretation or application to ‘reasonably’ in the two statutes [69]. On the facts, RA had acted reasonably. None of the criticisms of their conduct had been made out. They ought fairly to be excused. The law generally (although not invariably) leant towards confining the responsibility of professional people to a duty of care to take reasonable care and did not necessarily impose on them responsibility for loss resulting from the fraud of others [72].
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