Mortgage – Release of loan funds by solicitor – Breach of trust – Funds fraudulently obtained from mortgage lender in connection with fictitious property purchase – Appellant solicitor acting for respondent lender on transaction – Appellant paying over loan funds to party posing as vendors’ solicitor following purported completion of sale by telephone – Relevant documentation not subsequently provided – Whether appellant in breach of trust by paying over funds – Whether “completion” occurring so as to release appellant from trust – Appeal dismissed
The lender brought a claim against the appellant to recover the full amount of the loan funds, contending that the appellant had, inter alia, acted in breach of trust in parting with those funds when it had. It submitted that “completion”, in the sense that word was used in the Handbook, did not occur so as to release the appellant from its trust unless and until the transfer and charge were registered.
In the court below, the appellant was held to be liable for breach of trust to the full extent of the loan funds. The judge held that the appellant would have been entitled to pay away the loan funds on receipt of the documents necessary to register title, or on receipt of a valid solicitor’s undertaking to provide such documents, but that it was in breach of trust by making payment where it had received neither of those things. He further found that the appellant, although honest, had not acted reasonably and could not be excused from liability under section 61 of the Trustee Act 1925: see [2010] EWHC 2517 (Ch). The appellant appealed.
Held: The appeal was dismissed.
Following the lender’s payment of the loan funds to the appellant, the appellant held them on a bare trust for the lender until “completion”. That would have been the case even if the Handbook had not expressly so provided: Target Holdings Ltd v Redferns (a firm) [1996] 1 AC 421 applied. “Completion”, in a typical domestic sale and purchase transaction of a property with a registered title, conventionally referred to the ceremony, or the agreed postal equivalent, at which the vendor and purchaser or their respective agents performed the prior contract by an exchange of money and documents. The purchaser paid money to the vendor, which the vendor applied in redeeming the prior charges and satisfying the unpaid balance of the purchase money, while the vendor in exchange gave vacant possession of the property to the purchaser and delivered to him the transfer and certificates of discharge of the prior charges. There would, in practice, be a time gap between completion, in that conventional sense, and the subsequent registration of the transfer and charge that was necessary in order for them to “operate at law” within section 27 of the Land Registration Act 2002. The Handbook used the word “completion” in the conventional sense. The appellant was authorised by the lender to release the loan money to enable such completion to take place and the trust would only subsist until such time as completion occurred. That position accorded with the National Conditions of Sale, which the contract in the instant case purported to incorporate: the standard conditions expressly provided that the obligation to pay the balance of the purchase money had to be complied with on completion in the conventional sense and a purchaser signing up to such a contract could not decline to pay the balance until it was registered as proprietor.
The events of September 2007 did not amount to completion so as to bring an end to the trust. Completion required 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, which would give the purchaser the means of registering the transfer of title to the property that he had agreed to buy and to charge. In the instant case, there had been no exchange of money for documents. The appellant had parted with the loan funds in exchange for what it believed to be the undertakings of a firm of solicitors acting for the vendor. That belief was wrong since the undertakings had been given fraudulently and without authority in the name of a solicitor’s firm whose name had been misappropriated. The events of September 2007 were a nullity that could not be characterised as the completion of either the purchase or of the charge that the lender had instructed the appellant to obtain. The appellant therefore had no authority from the lender to release the loan funds.
It was not unfair for a solicitor to be liable to the lender in such circumstances, given the existence of the discretionary power to grant relief from liability under section 61 of the Trustee Act where it had acted honestly and reasonably. Although the appellant had acted honestly, the judge had been entitled to find that it had not acted reasonably and so should not be granted relief under section 61.
Christopher Aylwin (instructed by Patricks Solicitors) appeared for the appellant; Nicole Sandells (instructed by DLA Piper UK LLP) appeared for the respondent.
Sally Dobson, barrister
