The Court of Appeal’s decision in Nationwide Building Society v Davisons provides a welcome reappraisal of lenders’ claims for breach of trust by reasserting the availability of relief under section 61 of the Trustee Act 1925.
Mr Wilkes of Davisons was instructed by Nationwide and its borrower, Mr Patel, on a residential purchase and mortgage. He reported the direct payment of the deposit and the seller’s payment of the stamp duty “by way of gift” to Nationwide who reduced the loan by £1,880. He confirmed the identity of the seller’s solicitor with the Solicitors Regulatory Authority (SRA) and the Law Society. He obtained confirmation that the seller’s outstanding mortgage would be discharged on completion and obtained an apparently validly executed transfer before parting with Nationwide’s mortgage advance on completion.
The judge at first instance (Miss Catherine Newman QC) held Davisons liable to Nationwide for breach of trust. Mr Wilkes had fallen victim to a fraud orchestrated by Mr Patel. The seller’s solicitor was an imposter. The Law Society and the SRA had been told a month beforehand that the branch office from which the imposter purported to operate did not exist, but they failed to remove it from their online register. Following completion, the transfer to Mr Patel was registered but the seller’s charge remained on the register and repayments continued. Consequently, Nationwide was not registered with a first legal charge.
The judge concluded that Mr Wilkes was liable for breach of trust because the imposter could never have given a valid solicitor’s undertaking to discharge the seller’s charge. Furthermore, Mr Wilkes was not entitled to relief from breach of trust under section 61 of the Trustee Act 1925, because he had accepted confirmation that the seller’s outstanding mortgage would be discharged in a reply to the Oyez form of requisitions on title. If he had insisted on the standard protocol requisitions TA13 (which he had sent to the seller), the imposter would have given an express undertaking.
The Court of Appeal’s decision
The Court of Appeal agreed with the judge below that Mr Wilkes was in breach of trust. His obligation to obtain a first legal charge was absolute and the exercise by him of reasonable diligence was not a defence. However, allowing the appeal, the court held that he was entitled to relief under s61 because he had acted honestly and reasonably – the requisite standard being that of “reasonableness not of perfection”. For much the same reason, he was not in breach of his retainer (in tort/negligence).
Dyson LJ (who gave the only reasoned judgment) held (unsurprisingly) that the confirmation that the seller’s outstanding charge would be discharged was capable of being an undertaking. If Mr Wilkes had insisted on replies to form TA13, the imposter would have provided them so Mr Wilkes’ supposed error in accepting the Oyez requisitions had not caused the loss of Nationwide’s advance.
From the profession’s point of view, this is progress – up to a point. A purchaser’s solicitor remains under an absolute obligation to obtain a valid executed transfer and discharge of outstanding charges or binding undertakings to supply these documents on completion. The receipt of “undertakings” from an imposter who could not give a valid solicitor’s undertaking (as in this case) will not be sufficient. The argument that a solicitor who has acted honestly and reasonably should not be held in breach of trust, seems past praying for (absent an appeal to the Supreme Court), but will give grounds for relief under section 61.
That ought to reassure conveyancing solicitors who are honest and diligent. However, it will leave those who are confronted with a complex fraud vulnerable if they drop their guard. They will need to be scrupulous about ensuring that undertakings are given in requisitions on title, as well as reporting unusual features of the transaction to the lender and checking the status of the seller’s solicitors (as Mr Wilkes was).
The outcome doesn’t seem entirely satisfactory. Can it be right that a solicitor who falls victim to this type of fraud should be visited with a finding of breach of trust rather than mere negligence? And, more particularly, is it then right that the imprudent lending practices of the lender should be ignored in these circumstances?
Note: a differently constituted Court of Appeal will shortly return to breach of trust in the context of a re-mortgage in AIB v Mark Redler. We shall report further when its decision is handed down.