It is well established that a seller’s solicitor does not, in general, owe a duty of care to a purchaser. What then is the position if a seller’s solicitor pays away money sent to him on “completion” of a transaction, in accordance with his client’s instructions, only to find that his client had impersonated the registered proprietor in order to relieve an unsuspecting buyer of his cash?
In Purrunsing v A’Court & Co [2016] EWHC 789 (Ch); [2016] PLSCS 111, a defrauded buyer sought to hold his seller’s solicitors liable for breach of trust in exactly these circumstances. He had invested all his cash savings, together with sums borrowed from friends, to buy an unoccupied and unencumbered property for £470,000.
The fraudster had informed his solicitor that the house was a gift from his father and that he required a quick completion because he needed the money. He produced evidence of his identity to the lawyer, but none of the documents provided linked him to the property itself. The lawyer did not ask why his client’s address did not match either of the addresses for service registered by the proprietor at the Land Registry.
The fraudster’s first attempt to sell the property fell through; the fraudster withdrew when, for reasons that are not explained in the judgment, the buyer asked for confirmation of where the seller worked. Unfortunately, this did not ring any alarm bells with the fraudster’s solicitor, who accepted his client’s explanation that he had found another cash purchaser, who could complete quickly, and that he did not want to lose him while the previous buyer dallied. The transaction was rushed through and the fraudster disappeared with the money. Meanwhile, the Land Registry spotted the fraud and rejected the buyer’s application to be registered as the new owner.
The buyer drew the judge’s attention to recent cases dealing with a buyer’s solicitor’s liability to a lender for breach of trust. The cases establish that the trust on which a buyer’s solicitor holds the lender’s money is discharged only by genuine completion of the purchase, or by the return of the cash. So trustees who are in breach of trust must restore the amount lost from the trust fund unless the court excuses them because they have acted honestly and reasonably and ought fairly to be relieved of liability under section 61 of the Trustee Act 1925.
The buyer asked the judge to apply the same rationale because the seller’s solicitor held the purchase price on trust pending completion of the transaction. The fraudster’s solicitor tried to persuade the judge that he had no liability to the buyer at common law, and that the liability of a solicitor in equity should not be any greater. However, the judge upheld the claim on the ground that, whether a seller’s solicitor owes a duty of care in tort to a buyer has nothing to do with whether he becomes a trustee of purchase money pending completion.
Furthermore, honest though he was, the fraudster’s solicitor had failed to do enough to comply with his anti-money-laundering obligations in respect of his client in a transaction where there were a number of factors that increased the risk of fraud. Therefore, he was not entitled to be relieved from liability for the breach of trust.
Allyson Colby is a property law consultant
