The claimant sought damages for breach of trust against the first defendant solicitors and the second defendant conveyancer.
The claim arose out of the purported sale to the claimant of a property by a fraudster who claimed to be, but was not, the registered proprietor of the property. By the time the fraud was discovered, the whole of the £470,000 purchase price had been paid to the conveyancer who had been retained by the claimant to act on his purchase of the property, who had paid it to the solicitors who acted for the fraudster, who had paid it on the fraudster’s instructions to an account in Dubai. None of the money was recovered. No genuine completion of the transaction took place. It was common ground that the monies paid away by the conveyancer and the solicitors were payments made in breach of trust. Evidence was heard that the fraudster had supplied the solicitors with utility bills showing him living at a different address, and a forged passport. The fraudster had told the solicitors that the property had been left to him by his father and that he needed a quick sale. The Land Registry showed a different address for the registered proprietor but no further enquiries were made by the solicitors. In answer to enquiries, the solicitors had informed the conveyancer that they had no documents relating to the property from the fraudster. An earlier sale of the property had been stopped by the fraudster when the purchaser had asked for proof of where he worked in Abu Dhabi.
Both defendants sought relief under the Trustee Act 1925 s.61. The solicitors submitted that a more favourable reasonableness test should be applied to a vendor’s solicitor seeking to rely on s.61. The claimant argued that the conveyancer was also liable in contract and tort for failing to advise him of the unsatisfactory response to his enquiries and failing to provide him with the information he needed to make an informed decision on the sale.
HELD: (1) The solicitors knew that: the property was unoccupied; unencumbered; of high value; fast completion was requested; an alternative address for service was shown at the Land Registry; instructions had not been obtained from the fraudster as to the alternative address; no documentation had been supplied which showed a link between the fraudster and the property; the fraudster had not told the solicitors that he worked abroad; there was inconsistency between the information supplied by the fraudster in relation to building works at the property and information which came to light from a local authority search; and the first sale was withdrawn following a request for information as to the fraudster’s employment. The Law Society’s Conveyancing Handbook warned practitioners of a rising incidence of fraudsters and the importance of taking a risk-based approach to due diligence particularly in light of the circumstances of the sale. The submission that a lesser standard of reasonableness should be applied to a vendor’s solicitor than a purchaser’s solicitor was mistaken. The issue was not whether the vendor’s solicitor owed a duty of care in tort. The vendor’s solicitor was as much a trustee of the purchase money while it was in his possession pending completion as was the purchaser’s solicitor. There was an absolute obligation not to release the money before completion. Once it was found that a vendor’s solicitor was a trustee of purchase money and had parted with it in breach of trust, there was no obvious justification for interpreting s.61 more leniently than for a purchaser’s solicitor. The same standard of reasonableness applied to both, though what each had to do in order to fulfil that standard might be different, Santander UK v RA Legal Solicitors  EWCA Civ 183,  Lloyd’s Rep. F.C. 282 followed. The solicitors and conveyancer had failed to discharge the burden to establish that they had acted reasonably, and were not entitled to the benefit of s.61. A reasonable solicitor carrying out due diligence and adopting a risk-based approach ought to have clearly considered whether the fraudster was the owner of the property in order to assess whether the transaction was lawful. The solicitors had failed to carry out their money laundering obligations and that failure increased the loss by fraud (see paras 19, 32-33, 39-41, 43, 53, 55, 58-59 of judgment).
(2) The conveyancer had also been in breach of contract and/or duty to the claimant in failing to inform him that the enquiries had not verified a link between the fraudster and the property. The claim for damages for breach of contract and negligence succeeded (paras 49, 52).
(3) The solicitors and conveyancer had to bear equal liability for the loss. The conveyancer was acting for the claimant and under a professional obligation to ensure that the claimant proceeded at all times on an informed basis and it was the responsibility of the solicitors to carry out risk-based due diligence which they had made no serious attempt to do (paras 63-64, 66, 68).
Judgment for claimant