Santander UK Plc v R.A. Legal Solicitors (A Firm)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Andrew Smith |
| Judgment Date | 23 May 2013 |
| Neutral Citation | [2013] EWHC 1380 (QB) |
| Court | Queen's Bench Division |
| Docket Number | Case No: HQ12X01827 |
| Date | 23 May 2013 |
[2013] EWHC 1380 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Andrew Smith
Case No: HQ12X01827
Mr. Neil Mendoza (instructed by Matthew Arnold & Baldwin) for the Claimant
Mr. Imran Benson (instructed by DAC Beachcroft LLP) for the Defendant
Hearing dates: 13 & 14 May 2013
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.
Introduction
This claim arises from a mortgage fraud. In 2009 the claimant, Santander UK Plc (who were formerly called Abbey National Plc and to whom I shall refer as "Abbey"), arranged to lend £150,000 (plus fees) to a Mr Srinivas Vadika against security by way of first legal charge on a property at 8 Opal Close, London E16 (the "property"), which they understood he was to buy. The defendants, RA Legal, a firm of solicitors, acted for Mr Vadika and Abbey on the proposed purchase and Abbey's proposed charge. They dealt with another firm solicitors called Sovereign Chambers LLP ("Sovereign"), who presented themselves as acting for a Ms Emma Slater, the registered owner of the property. Sovereign were fraudulent, and as a result RA Legal released to Sovereign £200,000, comprising money transferred to them by Abbey as the loan and funds paid to them by Mr Vadika, but Abbey never obtained a charge over the property.
Before going further, I should state that the dispute was presented at trial concisely and with exemplary efficiency. The papers were in proper order, and submissions and cross-examination were focused. As a result, a trial listed for three days was completed in less than half that time. This was, no doubt, partly because both parties recognised that they were litigating against another innocent and reputable party about who should bear a loss resulting from the dishonesty of others, but the conduct of the hearing is to the credit of both parties and their advisers.
Abbey bring claims (i) in breach of trust for an order for the restitution of the sum of £150,215 (see para 17 below), and (ii) alternatively for damages for breach of the terms of RA Legal's retainer by Abbey or tortious negligence. RA Legal's defences to the breach of trust claim are principally that:
i) They deny that they acted in breach of trust;
ii) They rely on section 61 of the Trustee Act 1925, and submit that, because they acted "honestly and reasonably, and ought fairly to be excused for the breach of trust", they ought to be relieved of any liability.
Abbey did not really press the damages claim, recognising that they cannot realistically expect it to succeed if the breach of trust claim does not. The main questions that it raises are whether RA Legal failed to exercise reasonable skill and care when acting as Abbey's solicitors and whether they failed to take reasonable steps to protect Abbey's interests; and whether, if they did, it caused Abbey any loss.
Other matters that had been pleaded were not pursued. Abbey pleaded that under the terms of their retainer RA Legal were under absolute obligations to comply with the terms of their instructions and to obtain a fully enforceable first mortgage, but they recognised that this argument could not be maintained in light of authorities such as Nationwide Building Society v Davisons, [2012] EWCA Civ 1626 at paragraphs 52 and 53 and the earlier authorities there cited. RA Legal pleaded that Abbey's loss was caused partly or wholly by their own "imprudent lending", but Mr Imran Benson, who represented them, abandoned that contention. At one stage they proposed to argue that Abbey had not mitigated their loss and drafted an amended pleading accordingly, but that contention too was abandoned.
There is much common ground between the parties, including this:
i) Sovereign were a firm of solicitors regulated by the Law Society and practising in London E15.
ii) Sovereign were acting dishonestly.
iii) It does not affect what I have to decide whether or not Mr Vadika was acting dishonestly. Abbey plead that he was, but this is not admitted by RA Legal. This question is not important to any part of my decision, and I express no view about it.
iv) Ms Slater was not involved in the fraud and never agreed to sell the property to Mr Vadika nor, as far as the evidence before me goes, ever met him or had any dealings with him.
v) RA Legal acted honestly at all times, and in particular Mr Abul Rahman, a solicitor and partner in RA Legal, and Ms Kavita Sharma, a solicitor who had day-to-day conduct of the transaction under his supervision, were honest.
vi) Abbey instructed RA Legal by a letter dated 20 May 2009 to act as their solicitors and to perfect their legal charge over the property.
vii) Abbey's instructions and RA Legal's retainer incorporated parts 1 and 2 of the Council of Mortgage Lenders (CML) handbook current as at the date of the Certificate of Title, that is to say the edition of the handbook as at 1 June 2007 (the "handbook").
viii) Paragraph 5.6 of the handbook provided under the heading "First Legal Charge" as follows:
"On completion we require a fully enforceable first charge by way of legal mortgage over the property executed by all owners of the legal estate. All existing charges must be redeemed on or before completion, unless we agree that an existing charge may be postponed to rank after our mortgage. Our standard deed or form of postponement must be used".
ix) Paragraph 10 of the handbook, which was headed "The Loan and Certificate of Title", included the following:
"10.1. You should not submit your certificate of title unless it is unqualified or we have authorised you in writing to proceed notwithstanding any issues you have raised with us.
10.2. We shall treat the submission by you of the Certificate of Title as a request for us to release the mortgage advance to you. …
10.3.4. 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 (see part 2)".
x) On 17 July 2009, Abbey transferred £150,215 to RA Legal's account with Barclays Bank plc ("Barclays").
xi) On 21 July 2009 and 27 July 2009 Sovereign provided to RA Legal details of a bank account at The Access Bank UK Ltd ("Access") to which moneys for the purchase of the property should be transferred.
xii) On 28 July 2009 RA Legal instructed Barclays to transfer £200,000 to the Access account.
xiii) On 29 July 2009 Sovereign purported to effect on behalf of Ms Slater simultaneous exchange of contracts and completion of the property, but in fact completion within the meaning of paragraph 10.3.4 of the handbook never took place.
xiv) Abbey never obtained a first legal charge or any security over the property.
xv) Abbey have not recovered what they paid to RA Legal (or any part of it), and RA Legal have not recovered what they paid to Sovereign (or any part of it).
The issues between the parties are essentially these:
Compensatable loss for breach of trust
i) Did RA Legal act in breach of trust when they transferred the funds of Sovereign's account?
ii) If so, did the breach of trust cause Abbey loss?
Section 61 of the Trustee Act, 1925
iii) Did RA Legal act reasonably?
iv) Ought RA Legal fairly to be excused for the breach of trust, and should the court relieve them either wholly or partly from personal liability for their breach?
Claim for damages
v) Did RA Legal act in breach of their contract of retainer by failing to exercise reasonable care and skill, and were they in breach of their common duty of care and negligent?
vi) If so, did it cause Abbey damage and if so in what amount?
Unsurprisingly the history of the transaction is fully documented, but I heard evidence from three witnesses.
i) Abbey called Mrs Tracey Carr, who is employed in their Financial Crime and Risk Execution Department, and has worked for Abbey or their predecessors in connection with fraud investigations since 1998. She is now a Financial Crime Manager and has responsibility for reviewing Abbey's procedures relating to mortgage fraud.
ii) Abbey also called Mr Paul May, who is employed by them in their Specialist Mortgage Services Department as a Senior Lending Manager. He has been employed by Abbey since 2002 and before that he worked for Alliance and Leicester PLC.
iii) RA Legal called evidence from Mr Abul Rahman, to whom I have already referred.
They were all honest in their evidence and sought to assist the court. In one respect, however, I am unable to accept Mr May's evidence: as I shall explain, his evidence, at least in his witness statement, about what Abbey would have done if informed about completion being delayed described a more rigid and decisive response than is, to my mind, realistic or Mr May was able to explain or to support in cross-examination. I regard Mr Rahman as a particularly impressive witnesses, who was entirely straightforward and candid and did not prevaricate or seek to excuse such (minor) criticisms of him or his firm as could properly be made.
The transaction
I set out the history of what happened in some detail: much of it is uncontroversial. RA Legal carried on practice in London E3 and about half their work was commercial and residential conveyancing. They ceased to practise on 1 October 2009 because they could not obtain professional indemnity insurance at a reasonable price. There were two partners, Mr Rahman and Mr Babul Ahmed. Mr Rahman, who qualified as a solicitor in 1999, was an experienced conveyancer. Ms Sharma was a solicitor who in 2009 had been qualified for about 5 years and she conducted many conveyancing transactions....
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