Santander UK Plc v R.A. Legal Solicitors
| Jurisdiction | England & Wales |
| Judge | Lord Justice Briggs,Mrs Justice Proudman,The Chancellor |
| Judgment Date | 24 February 2014 |
| Neutral Citation | [2014] EWCA Civ 183 |
| Docket Number | Case No: A2/2013/1600 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 February 2014 |
[2014] EWCA Civ 183
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT, QUEEN'S BENCH DIVISION
Mr Justice Smith
HQ12X01827
Royal Courts of Justice
Strand, London, WC2A 2LL
THE CHANCELLOR OF THE HIGH COURT
Lord Justice Briggs
and
Mrs Justice Proudman
Case No: A2/2013/1600
Thomas Grant QC (instructed by MATTHEW ARNOLD & BALDWIN LLP) for the Appellant
Michael Pooles QC and IMRAN BENSON (instructed by DAC BEACHCROFT LLP) for the Respondent
Introduction
In May 2009 Santander UK PLC (formerly Abbey National) ("Abbey") agreed to lend £150,000 plus fees to a Mr. Srinivas Vadika for the ostensible purpose of assisting him in the purchase of a residential property known as 8 Opal Close, London E16 ("the Property"). Mr. Vadika and Abbey instructed R.A. Legal Solicitors to act for them in connection both with the purchase and the obtaining of first mortgage security for Abbey. The purchase price for the Property was £200,000 and Mr. Vadika was to contribute the balance of £50,000 from his own resources.
R.A. Legal were advised that the owner and vendor of the Property was a Ms. Emma Slater, and that her solicitors were Sovereign Chambers LLP ("Sovereign").
From the perspective of those dealing with the matter at R.A. Legal, the matter proceeded as an entirely ordinary and unremarkable residential conveyancing transaction. Having been put in funds by Abbey and Mr. Vadika, R.A. Legal transferred £200,000 to Sovereign's client account on 28 th July 2009, and the transaction apparently completed on the following day, simultaneous exchange of contracts and completion being confirmed by a telephone conversation between the two firms on 29 th July, in the early afternoon.
Unfortunately for Abbey and R.A. Legal, and possibly for Mr. Vadika, the transaction did not complete on 29 th July, or at all. Although Ms. Slater was indeed the registered proprietor of the Property, and apparently seeking to sell it, she had never retained Sovereign for that purpose, never agreed to sell it to Mr. Vadika, and was until early November 2009 entirely unaware that it had been purportedly sold on her behalf by Sovereign.
Although a firm of solicitors in good standing with the Law Society, Sovereign was in fact a fraudster. No part of the purchase money was used either to pay Ms. Slater or to discharge the mortgage which she had granted over the Property. It disappeared from the Sovereign client account on 13 th August 2009 and has not been traced or recovered. The result was that Abbey received nothing of substance by way of security for its advance of £150,000 to Mr. Vadika. On the face of it, he lost his own contribution of £50,000 for nothing in return, and incurred a personal liability to repay Abbey £150,000, again for nothing in return. The dispute and litigation which has led to this appeal is however only between Abbey and R.A. Legal. The trial judge Andrew Smith J. made no findings one way or the other whether Mr. Vadika had been a genuine purchaser or a party to Sovereign's fraud, it being common ground that the answer to this question was irrelevant to the matters which he had to decide.
The standard form terms upon which Abbey instructed R.A. Legal required the firm to hold Abbey's £150,000 on trust until completion. Since R.A. Legal released Abbey's advance to Sovereign without completion ever taking place, Abbey sued R.A. Legal for breach of that trust. It also claimed in negligence, but this was not pursued at trial.
In a careful and detailed reserved judgment, the judge concluded, following decisions of this court in Davisons (Solicitors) v Nationwide [2012] EWCA Civ 1626 and AIB Group (UK) PLC v Mark Redler & Co [2013] EWCA Civ 45, that R.A. Legal had indeed been in breach of trust in releasing Abbey's money on 29 th July, albeit in the genuine belief that completion was taking place on that day. Nonetheless he concluded that R.A. Legal should be wholly relieved from liability under section 61 of the Trustee Act 1925. After detailed analysis of the pleaded criticisms of R.A. Legal's conduct of the transaction, he found that none of the conduct criticised was sufficiently connected with Abbey's loss and that, even if it had been, it did not amount to fault on the part of R.A. Legal that was sufficiently serious, or involved such a departure from ordinary and proper standards, as to cut them off from the court's discretion to relieve them of liability: (judgment paragraph 70). He concluded that R.A. Legal ought fairly to be excused from liability because Abbey's loss was in substance caused by the fraud of Sovereign, an unconnected third party, for which R.A. Legal could not fairly be treated as responsible: (judgment paragraphs 71–72). The result was therefore that Abbey's claim failed.
Abbey appealed to this court on two broad grounds. First, it says that the judge failed to recognise as a separate and distinct breach of trust R.A. Legal's transfer of the purchase monies (including Abbey's advance) to Sovereign's client account on the day before exchange and completion. Secondly, it says that all or at least some of the respects in which R.A. Legal departed from standard or best practice were sufficiently connected with its loss, and that the judge's conclusion that the defaults were insufficiently serious arose from an inappropriate attempt to construe section 61 by reference to the jurisprudence about the similarly worded relieving provision in section 727(1) of the Companies Act 1985.
For its part, R.A. Legal asserts by Respondent's Notice that the judge was wrong to find that there had been any breach of trust. Nonetheless R.A. Legal accepted at trial that, if it was in breach of trust as found by the judge then, subject to relief under s.61, it was liable to make good the amount of the loan advance to Abbey. R.A. Legal did not resile from that admission on appeal.
Breach of trust
It is convenient to take R.A. Legal's Respondent's Notice first. Mr. Michael Pooles QC, who appeared for R.A. Legal on appeal (but not below) readily acknowledged that this court is bound by the Davisons case, and by the decision, on similar facts, of this court in Lloyds TSB PLC v Markandan & Uddin [2012] EWCA Civ 65, to conclude that solicitors who hold a loan advance on trust until completion necessarily commit a breach of trust if they part with the advance otherwise than upon completion. As Rimer LJ said in the Markandan case, at paragraph 50, on comparable facts:
"Nothing, said Lear, will come of nothing, and so it was here. Completion in the present context must mean 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 that will give the purchaser the means of registering the transfer of title to the property that he has agreed to buy and to charge. An exchange of real money for worthless forgeries in purported performance of a purported contract that was a nullity is not completion at all."
In face of that volume of binding authority, Mr. Pooles readily acknowledged that he could do no more than preserve for argument in the Supreme Court the submission that there had been no breach of trust at all.
The more difficult question is whether the judge should have found that a breach of trust occurred on 28 th July when the money was transferred to Sovereign's client account, as well as on 29 th July when it was released by R.A. Legal on what appeared to that firm to be completion. The judge considered but did not decide this question, it being sufficient for his analysis that a breach of trust occurred on the following day, when R.A. Legal released the money on apparent completion (by which he meant released Sovereign from any obligation to continue to hold the money to the order of R.A. Legal).
Mr. Thomas Grant QC for Abbey (who, like Mr. Pooles, did not appear below) advanced one short and one longer argument in support of a conclusion that the transfer on 28 th July was a breach of trust. The short one was that R.A. Legal had no authority under the terms of the trust upon which they held Abbey's money to release it to Sovereign, even on terms that Sovereign was to hold it to R.A. Legal's order, because Sovereign was not acting for the owner and supposed vendor of the Property, and was neither able nor intending to complete the transaction. Sovereign was, of course, a firm of solicitors, and the money was transferred into Sovereign's client account. But, said Mr. Grant, Abbey appointed R.A. Legal, and no-one else nor any other solicitor, as its trustee for the custody of the money pending completion. It had no authority to transfer custody to another person, even another solicitor, any more than a trustee of another's money or property can simply delegate custody to anyone of its choosing.
My reading of paragraph 62 of the judgment suggests that, if he had needed to do so, the judge would have rejected this argument. He said:
"After all (as I suggested in argument) it was not said and could not have been said that R.A. Legal had to keep the funds in cash: they were paid into a bank account and the trust property was by way of a chose in action against R.A. Legal's bank. Abbey transferred the funds into R.A. Legal's account with Barclays but I cannot accept that they would have been in breach of trust if they had transferred the funds to another client account at another bank. I see no principled reason to distinguish that position from them transferring the funds to...
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