Lloyds TSB Bank Plc v Markandan & Uddin (A Firm)
| Jurisdiction | England & Wales |
| Judgment Date | 14 October 2010 |
| Neutral Citation | [2010] EWHC 2517 (Ch) |
| Docket Number | Case No: HC08C01118 |
| Court | Chancery Division |
| Date | 14 October 2010 |
[2010] EWHC 2517 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Mr Roger Wyand Qc Sitting as a Deputy High Court Judge
Case No: HC08C01118
Miss Nicole Sandells (instructed by DLA Piper Rudnick Gray Cary UK LLP) appeared for the Claimant
Mr Christopher Aylwin (instructed by Patricks, Solicitors) appeared for the Defendant
Hearing dates: 27 and 28 May 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This is the hearing of the trial of preliminary issues in an action for breach of trust or alternatively breach of undertaking and/or contract. The action arises out of a purported transaction for the purchase of a property known as 35 Claremont Road, Barnet, London (“the Property”). The Claimant is the successor in title to a mortgage lender which offered a mortgage in respect of the property and the Defendant is a firm of solicitors who were instructed to act on behalf of the Claimant on the transaction.
It is necessary to set out the facts of the transaction to make sense of the preliminary issues that were ordered to be tried in this case.
In June 2007 a Mr Victor Davies applied to Cheltenham & Gloucester plc (“C&G), the predecessor in title to the Claimant 1, for a mortgage to purchase the Property. A mortgage offer was made to Mr Davies in respect of the Property.
Mr Davies instructed the Defendant to act for him and the Defendant was also instructed to act for C&G on the transaction in accordance with the Council of Mortgage Lenders' Handbook for England and Wales (“the CMLH”). The Defendant was sent C&G's standard form of Certificate of Title to complete. The Certificate of Title includes, inter alia, the following terms:
(1) If so instructed, we have checked the identity of the Borrower (and anyone else required to sign the mortgage deed or other document connected with the mortgage) by reference to the document or documents precisely specified by you.
(2) Except as otherwise disclosed to you in writing:
(i) we have investigated the title to the Property, we are not aware of any other financial charges secured on the Property which will affect the Property after completion of the mortgage and, upon completion of the mortgage, both you and the mortgagor (whose identity has been checked in accordance with paragraph (1) above) will have a good and marketable title to the Property and to appurtenant rights free from prior mortgages or charges and from onerous encumbrances which title will be registered with absolute title.
…
We:
…
(b) have made or will make such Bankruptcy, Land Registry or Land Charges Searches as may be necessary to justify certificate no. (2)(i) above;
(c) will within the period of protection afforded by the searches referred to in paragraph (b) above:
(i) complete the mortgage;
…
(iii) deliver to the Land Registry the documents necessary to register the mortgage in your favour and any relevant prior dealings;
(iv) effect any other registrations necessary to protect your interests as mortgagee;
…
(e) will not part with the mortgage advance (and will return it to you if required) if it shall come to our notice prior to completion that the Property will at completion be occupied in whole or in part otherwise than in accordance with your instructions;
…
(g) will not use the mortgage advance until satisfied that prior to or contemporaneously with the transfer of the Property to the mortgagor, there will be discharged (A) any existing mortgage on property the subject of an associated sale of which we are aware and (B) any other mortgages made by a lender identified by you secured against a property located in England or Wales where you have given either an account number or numbers or a property address;
(h) will notify you in writing if any matter comes to our attention before completion which would render the certificate given above untrue or inaccurate and, in those circumstances, will defer completion pending your authority to proceed and will return the mortgage advance to you if required.
The Certificate of Title was completed by Mr Markandan, a partner in the Defendant, on the 29 th August 2007 stating a completion date of 31 st August 2007. On the 31 st August 2007 C&G remitted an advance to the Defendant of £742,500, being 90% of the valuation of the Property by C&G's valuer following an inspection of the property.
On the 24 th of August the Defendant had been contacted by the Holland Park office of Deen Solicitors (“Deen”), a firm with a head office in Luton, informing the Defendant that they were acting for Mr and Mrs Green, the owners of the Property.
The Defendant, having received Replies to Requisitions on Title from Deen remitted the sum of £707,613.25 to the account nominated by Deen on the 4 th September 2007. That sum was the advance from C&G less the Defendant's legal fees, costs, stamp duty, land registry fees and disbursements. That sum was treated as the entire outstanding balance of the purchase price with no further monies being paid by Mr Davies through the Defendant.
Although that money was paid on the 4 th September no signed contract was obtained from the vendor on that date. On the 11 th September the Defendant wrote to Deen requesting the signed contract, transfer and discharge certificates. They were not received. On the 25 th September Deen returned the sum they had received on the 4 th September, less £5,000, and requested the Defendant send that money back to a different account.
The Defendant still had not received the necessary documentation for completion and raised a number of reasons why it would not comply with Deen's request. On the 28 th September Deen wrote excusing their conduct and asking for the funds. The Defendant complied with that request the same day although it still had not received any of the documentation.
Deen then disappeared. Although there is a firm of that name based in Luton registered with the Law Society it does not have an office in Holland Park. The registered owners of the property, which was let at the time, deny all knowledge of the transaction and the money has disappeared. It appears that the whole transaction was a fraud. The Defendant has produced newspaper articles concerning a court case involving someone using the name Victor Davies in similar frauds although in those frauds the solicitor acting for “Mr Davies” would seem to have been involved in the fraud. In this case there is no allegation that the Defendant was involved in the fraud and there is certainly no evidence before me of any such involvement.
On the 26 th of August 2008 Master Moncaster ordered the trial of the following preliminary issue:s
a. Given the admission in Paragraph 13 of the Defence, has there been a breach of trust by the Defendant?
b. If the answer to (a) is yes:
i. Is the Defendant entitled to relief under Section 61 (of the Trustee Act 1925)?
ii. Can the Defendant rely in principle on the allegation in the Defence that any loss or damage suffered by the Claimant was caused or contributed to by the Claimant's own fault?
c. If the answer to question (a) is yes and to question (b) is no:
i. What is the Claimant's measure of loss, including but not limited to answering the question whether its loss is limited to the amount it would have received had it repossessed and sold the Property in reliance upon the first legal charge thereon?
ii. Is the Claimant entitled to recover that loss?
Question (a)
Paragraph 13 of the Defence states: It is admitted that, whilst it held the Advance, the Defendant held it on bare trust for (the Claimant) with (the Claimant's) authority to pay it away in connection with Mr Davies' purchase of the property.
The Claimant says that its case is a straightforward breach of trust. It says that the money was given to the Defendant firm subject to the provisions of the CMLH. Clause 10.3.4 of the CMLH provides: “You must hold the loan on trust for us until completion. If completion is delayed, you must return it to us when and how we tell you.” The Claimant says that completion has never occurred and, as a result, it is entitled to repayment of the money. The advantage to the Claimant of this approach is that, it says, it does not need to show any negligence or fault on the part of the Defendant and there can be no issue of contributory negligence.
The Claimant also argues that the onus is on the Defendant to establish the facts required to engage Section 61 of the Trustee Act 1925 and that the Defendant has failed to do so in this case.
So far as the quantum is concerned, the Claimant says that it is entitled to a sum equal to the trust fund that the Defendant wrongly paid away together with the interest that it would have received under the mortgage deed, alternatively it claims compound interest at the rate of 4%.
The Defendant accepts that it was instructed to act on behalf of C&G in the transaction subject to the terms and conditions set out in the CMLH subject to paragraph 6.3(c) of the Solicitors' Practice Rules 1990, the relevant part of which relied upon by the Defendant is:
“A solicitor acting for both lender and borrower in a standard mortgage may only accept or act on instructions from the lender which are limited to the following matters: …checking that the seller's solicitors …(if unknown to the solicitor) appear in a current legal directory or hold practising certificates issued by their professional body.”
The Defendant further relies on the fact that the Certificate of Title is, strictly, only paragraphs (1) and (2) of the document and that the rest of the document following...
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