Purrunsing v A’Court & Co (a firm) & Anor [2016]
In Purrunsing v A’Court & Co (a firm) & Anor [2016] EWHC 789 (Ch) (14 April 2016) the matter came before His Honour Judge Pelling QC in respect of a fraudulent sale of a property in London by a person who held himself out to be the registered owner when he was not.Once the fraud was uncovered all the purchase price of £470,000 had been paid to the Claimant’s registered conveyancer, the Second Defendant, who had paid them to the First Defendant acting for the fraudster, referred to in the judgment as Mr Dawson. They had, on Mr Dawson’s instructions, forwarded the whole of the monies to a bank in Dubai. The money and the supposed Mr Dawson then disappeared.
Mr Justice Pelling outlined the common ground:
- It was not a genuine completion even though the Sellers solicitors held a Transfer signed by Mr Dawson
- The monies paid over by both Defendants were in breach of trust and therefore both are liable to the Claimant in that respect
- With regard to the Second Defendant, the Claimant’s Conveyancers, he had a claim for breach of contract and duty
The proceedings were initially commenced against the First Defendant in July 2013 and on the 10th April 2014 an Order was made with judgment entered for the Claimant that the monies had been paid out by them in breach of trust with a direction that the application made by the First Defendant for relief under s.61 of the Trustee Act 1925 be decided at the trial. The Second Defendant was joined in as a Defendant in November 2014 where they admitted breach of trust and also made an application for relief under s.61 but denied breach of contract and duty. The Defendants issued Contribution notices against each other. No allegations of dishonesty were made by the Claimant against either Defendant or by either Defendant against the other.
The issues for the court to decide were:
- Should either of the Defendants be granted relief under s.61 of the Trustee Act 1925
- Should the Second Defendant be liable for breach of contract and duty as claimed by the Claimant and
- What contribution should either of the Defendants be ordered to make to the Claimant in respect of any liability they may have to him.
Judge Pelling examined s.61 of the Trustee Act 1925 which provides for a trustee, appointed by the court or otherwise, who may be personally liable for a breach of trust to be fairly excused from that breach in whole or in part if they have acted reasonably and honestly. He pointed to three authorities which all the parties agreed contained the established principles as to s.61 in respect of a conveyancing transaction.
He referred to a two stage test to decide whether s.61 applies being, did the trustee act honestly and reasonably and, in all the circumstances, should the trustee be fairly relieved, in whole or in part, of personal liability.
He applied the principles applicable to s.61 in respect of conveyancing matters. In particular, the reasonableness test applied to a solicitor parting with completion monies without obtaining completion which Judge Pelling said was of high importance because of what is required from a trustee in discharging its fiduciary duties.
He further considered the Sellers Solicitors holding the purchase monies pending completion on trust for the purchaser which they released to Mr Dawson even though completion did not take place. He said it followed that they were in breach of trust and liable to the purchaser as they are as much of a trustee of the purchase monies in their possession pending completion as are the Purchasers conveyancers, aside from whether the Sellers Solicitors owe a duty of care in tort to the Purchaser. He continued that it was an absolute obligation that the purchase monies must not be released prior to completion taking place.
With regard to the claim against the Second Defendant who was being sued by the Claimant for breach of trust, which they admitted but, also in contract and tort, Judge Pelling considered they were in breach of contract and duty to the Claimant. They had not let him know that an additional enquiry they raised asking for confirmation to link the Seller with the property had not been answered with any documentation of proof as to Mr Dawson. The Sellers Solicitors had no personal knowledge of him nor could not verify or confirm information they had and therefore there was a risk in carrying on with the purchase.
Judge Pelling considered that if the information required had been available to the Claimant then it would have been his decision whether to proceed or not and there was no suggestion in cross-examination that he would have carried on regardless of whether the information was supplied or not. He concluded that the Claimant would not have proceeded and found that the claim for breach of contract and negligence had succeeded. He continued that the Second Defendant had failed to prove that it acted reasonably and was therefore not entitled to claim relief under S.61 of the Trustees Act 1925.
With regard to the First Defendant he concluded that they had failed to establish they had acted reasonably in the circumstances and were not entitled to claim relief under S.61 of the Act. He considered that a reasonable solicitor in undertaking money laundering requirements should have confirmed whether Mr Dawson was the registered owner of the property. He found there had been a lack of due diligence carried out as required under the money laundering regulations which led to increased risks.
In respect of the applications for Contribution by each Defendant in accordance with s.1 of the Civil Liability (Contribution) Act 1978 Judge Pelling confirmed that there was no dispute that both Defendants were liable for the same damage and he found that they should each bear the liability equally for the loss.
What this case highlights is the necessity for client due diligence, to identify and verify the client’s identity from documentation acquired from a reliable source which requirements are contained in the Conveyancing Handbook and are imposed on all those acting in the buying and selling of real property . If all checks had been carried out in accordance with the regulations then the circumstances of this case might well have been avoided.
Further in respect of both conveyancers being found jointly liable for the loss by Judge Pelling, this sets a new precedent of which conveyancers should be very aware.