Davisons Solicitors (A Firm) v Nationwide Building Society
| Jurisdiction | England & Wales |
| Judge | Lord Justice Sullivan,Lord Justice Munby,The Chancellor |
| Judgment Date | 12 December 2012 |
| Neutral Citation | [2012] EWCA Civ 1626 |
| Docket Number | Case No: A2/2012/1102/QBENF |
| Court | Court of Appeal (Civil Division) |
| Date | 12 December 2012 |
[2012] EWCA Civ 1626
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE,
QUEEN'S BENCH DIVISION
Miss Catherine Newman QC
HQ11X00854
Royal Courts of Justice
Strand, London, WC2A 2LL
The Chancellor of The High Court
Lord Justice Sullivan
and
Lord Justice Munby
Case No: A2/2012/1102/QBENF
Michael Pooles QC and Derek Holwill (instructed by Berrymans Lace Mawer LLP) for the Appellant
William Flenley QC and Paul Parker (instructed by Eversheds LLP) for the Respondent
Hearing date : 20 November 2012
The Chancellor:
Introduction
On 12th December 2008 the claimant Nationwide Building Society ("Nationwide") offered to Kalpesh Kumar Hasmukh Patel ("Mr Patel") a loan of £187,500 to enable him to buy 61 Avery Road, Sutton Coldfield, West Midlands, B73 6QD ("the Property") for £249,995. The freehold of the Property was registered in the name of Shamsun Naher Begum. It was subject to a registered charge in favour of G.E.Money Home Lending Ltd. The offer specified the defendant ("Davisons") as the solicitors and the conditions required them to be instructed on the basis of the Council of Mortgage Lenders Handbook current at that time ("the CML Handbook"). I shall refer to relevant parts of the CML Handbook later; for the present it is sufficient to note that paragraph 10.3.4 required Davisons to hold any loan money released to them on trust for Nationwide until completion. Davisons were duly instructed by both Mr Patel and Nationwide to act in respect of his purchase and mortgage loan; the individual within the firm responsible for the work was Mr Darryl Wilkes.
On 30th January 2009 Rothschild, a firm of solicitors based in Corporation Street, Birmingham wrote to Davisons from an office in Coventry Road, Small Heath. The letter, signed by Mr Bipin Kumar Gill and headed "61 Avery Road", suggested that Rothschild were acting for Shamsun Naher Begum as the seller. Rothschild indicated that they held a deposit paid to them by Mr Patel of £62,995 and that their client would pay the stamp duty by way of gift to Mr Patel. This information was passed by Davisons to Nationwide which reduced the amount of the mortgage loan to £185,620 and £995 for fees. Because Mr Wilkes had not previously dealt with Rothschild or Mr Gill he checked their existence and office at Small Heath, as recommended in paragraph A3.2 of the CML Handbook and the Law Society's Green Card, by going to the websites maintained by the Law Society and the Solicitors Regulation Authority. The websites confirmed that Mr B.K.Gill was a duly qualified solicitor and sole practitioner and the existence of the Rothschild practice with branches in Birmingham and Small Heath.
The matter proceeded, apparently normally, as I shall describe in detail later. Rothschild confirmed to Davisons on 24th February 2009 that they would have sufficient funds on completion with which to discharge the existing mortgage. On 5th March 2009 Davisons sent Rothschild a transfer form for their approval and asked for replies to the standard protocol requisitions TA13.On the same day Rothschild replied enclosing a copy of the transfer signed by their client and completed requisitions on title but on the OYEZ form not TA13 as requested. I shall refer to those answers in due course in greater detail, for present purposes it is sufficient to record that in requisition 4(A) Rothschild confirmed that the charge in favour of G. E. Money Home Lending Ltd would be discharged and in requisition 7(D) Rothschild agreed to comply with the Law Society's Code for completion by post (1998 Edition). Paragraph 9(ii) of that code provides that when completing the seller's solicitor undertakes to redeem or obtain discharges for existing charges.
On 9th March 2009 Nationwide released £185,620 to Davisons. On 12th March 2009 contracts were signed and exchanged by telephone under the Law Society's Formula B, the charge in favour of Nationwide was executed by Mr Patel and the purchase price was remitted by CHAPS by Davisons to Rothschild. Thereafter Mr Patel was duly registered as the proprietor of the freehold of the Property but the charge in favour of G.E.Money Home Lending Ltd was not discharged and that in favour of Nationwide was not registered.
Subsequent investigation has revealed that although Mr B.K.Gill is indeed a solicitor practising in the name of Rothschild from premises in Birmingham he has never practised from premises in Small Heath. The notification of that business address to the Law Society and the Solicitors Regulation Authority was given by an impostor. Although Mr Gill became aware of such notification in December 2008 and promptly notified the Law Society and the Solicitors Regulation Authority no steps were taken by them to remove that address from their websites until after the events to which I have referred. It appears that even now the vendor remains in occupation of The Property and the instalments due to G.E.Money Home Lending Ltd under their charge continue to be paid.
These proceedings were commenced by Nationwide against Davisons on 6th March 2011. They seek damages, not for breach of any duty of care, but for breach of the retainer and repayment of the money transferred by Nationwide to Davisons or equitable compensation for breach of the trust arising under paragraph 10.3.4 of the CML Handbook. In its defence Davisons denied liability and, in the alternative, sought relief under s.61 Trustee Act 1925 on the ground that it had acted honestly and reasonably and ought fairly to be excused for any breach of trust for which it might be liable. The action was heard by Ms Catherine Newman QC, sitting as a deputy High Court judge of the Queen's Bench Division on 18th to 20th January 2012. For the reasons given in her judgment handed down on 24th April 2012 she rejected Davisons defence and gave judgment in favour of Nationwide in the sum of £213,490 and costs. She refused permission to appeal, the requisite permission being given by Sir Scott Baker.
By a letter dated 12th November 2012 the Law Society sought permission to intervene. It submitted written submissions but did not seek to appear by counsel at the hearing. The application was opposed by Davisons but not by Nationwide. We invited oral argument from their respective counsel at the commencement of the hearing of the appeal. Having heard that argument we decided to reject the application of the Law Society and indicated that we would give our reasons later. I will give my reasons after I have dealt with this appeal. Accordingly the issues for our determination are whether the judge was right to conclude that:
(1) Davisons acted in breach of trust,
(2) Davisons should not be relieved of liability for any breach of trust for which they were liable under s.61 Trustee Act 1925,
(3) Davisons are liable for breach of contract.
Before considering any of those issues I must set out the relevant provisions of the CML Handbook, OYEZ reply to requisitions and the Postal Completion Code, describe the facts in greater detail, set out the material passages of the judge's judgment and consider the decision of this court in Lloyds TSB Bank plc v Markandan & Uddin [2012] 2 AER 884.
The Facts and Documents
The Council of Mortgage Lenders is a trade association for the residential mortgage lending industry. The CML Handbook is issued by the Council to provide the basis on which solicitors may be instructed by mortgage lenders. It contains 17 sections. The first section is entitled Instructions and Guidance. It makes clear in paragraph 1.3 that it does not affect the responsibilities of a solicitor under the general law or any practice rule or guidance issued by a relevant professional body. It is addressed by the lender to the solicitor (paragraph 1.2). Paragraph 1.4 prescribes the standard of care expected of the solicitor to be that of "a reasonably competent solicitor…acting on behalf of a mortgagee".
Paragraph 3 is entitled Safeguards. Part A relates to solicitors and those working in practices regulated by the Solicitors Regulation Authority. Paragraph A3.2 provides:
"If you are not familiar with the seller's solicitors…, you must verify that they appear in a legal directory or they are currently on record with the Law Society…as practising at the address shown on their note paper."
The judge recorded in paragraph 8 of her judgment that:
"Mr Wilkes had not dealt with the firm of Rothschild before…He therefore sought to confirm the identity of the practice and the Small Heath Office with the Law Society and the SRA by checking the website. He checked both the branch office and Mr Gill. His investigations confirmed Mr Gill to be a solicitor and a sole practitioner and the existence of the Rothschild practice and the branch office."
Paragraph 5 of the CML Handbook deals with Title. Paragraph 5.2 relates to searches. Paragraph 5.2.1 requires the solicitor to ensure that all usual and necessary searches and enquiries have been carried out. Paragraph 5.2.7 provides that:
"You must be satisfied that you will be able to certify that the title is good and marketable."
This requirement is amplified in paragraph 5.4.1 providing that:
"The title to the property must be good and marketable free of any…charges or encumbrances which, at the time of completion, might reasonably be expected to materially adversely affect the value of the property…"
Paragraph 5.8 headed "First Legal Charge" provides that:
"On completion, we require a fully enforceable first...
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