Breach of Trust, s.61 of the Trustee Act 1925 and Due Diligence - The Ball is in Whose Court?
Published 20 June 2016
Purrunsing v (1) A’Court & Co (A Firm) and (2) House Owners Conveyancers Limited.
The claim arose out of the purported purchase by the Claimant of a residential property in Wimbledon from a fraudster who claimed to be (but was not) a Mr Dawson ("the Fraudster"). By the time the fraud was discovered the purchase price (approximately £470,000) had been paid by the Fraudster's solicitors to a bank in Dubai on the Fraudster's instructions. This money was not recovered.
Judgment was initially entered for the Claimant against the Fraudster's solicitors, A'Court, because the purchase money had been paid away in breach of trust. However, the Court ordered that A'Court's application for relief under s.61 of the Trustee Act 1925 be determined at trial. S.61 provides:
“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust...but has acted honestly and reasonably and ought fairly to be excused for the breach of the trust...then the court may relieve him either wholly or partly from personal liability for the same.”
The Claimant's conveyancers, HOCL, were joined as a defendant. They admitted breach of trust but also applied for relief under s.61. Both Defendants issued Contribution Notices and the issues to be determined at Trial were:
- Whether HOCL was liable to the Claimant for breach of contract and/or negligence;
- Whether either Defendant should be granted relief under s.61; and
- If not, what contribution should each Defendant be ordered to bear.
The Court's Finding:
As to the claim in contract/breach of duty:
HOCL was in breach of contract with and / or duty to the Claimant in failing to inform him that:
- An additional enquiry had been raised by HOCL of the Fraudster;
- The purpose of that additional enquiry was to attempt to establish a link between the property and the apparent vendor;
- The answers received showed that A'Court had (i) no documents whatsoever relating to this property, save for those already received, (ii) no personal knowledge of the Fraudster and (iii) not verified, and could not confirm a link between the vendor and the property; and, therefore
- There was a risk in proceeding with the purchase.
It was "close to inconceivable" that the Claimant would have proceeded with the transaction if advised properly and causation was therefore established.
It followed that HOCL failed to discharge the burden of proving that it acted reasonably and was not entitled to rely on s.61. A'Court also failed to discharge the necessary burden and could not rely on s.61 because:
- They ought to have considered whether Mr Dawson was the owner of the property to establish whether the transaction was lawful; and
- They had not carried out their MLR obligations in accordance with reasonable practice.
Having regard to relative causal potency and blameworthiness, HOCL and A'Court were to bear equal responsibility for the loss.
The decision is said to be the first to consider the responsibilities of a non-fraudulent vendor's solicitor releasing funds held on behalf of a purchaser in breach of trust. It remains the case that a vendor's solicitor owes no contractual/tortious duty to a purchaser. However, the case provides a graphic illustration of the need for a vendor's solicitor to comply with the strict requirements of the MLR and to satisfy themselves as to the identity of their client before trust funds are released.
The decision might also be seen as placing a heavy burden on a purchaser's solicitor particularly in circumstances where, as was the case here, the purchaser's solicitor had received answers to questions said to have been designed to ensure that the vendor was entitled to sell the property. However, the Judge found it significant that the purchaser was not made aware of the answers which were given or the further enquiries which could, or indeed, ought to have been made. This is a stark reminder that within reason the Court will expect a solicitor investigating title to leave no stone unturned and to ensure their client can make an informed decision as to whether to proceed.
The apportionment of any liability between solicitors will have to be determined on the facts in each case. However, here both solicitors were said to have been equally to blame showing that the maxim, let the buyer beware does, of course, have its limitations.