The case of Santander UK Plc v R A Legal Solicitors (a firm)  EWHC 1380 (QB) contains a timely review of “mortgage fraud” cases and of the circumstances in which a solicitor might successfully obtain relief under section 61 Trustee Act 1925 (see further Karen Shuman’s posting “Section 61 Trustee Act 1925 and the Three Wise Men”).
The brief facts were as follows: the defendant solicitors (“RA”) acted for V, the purchaser and V’s lender (“Abbey”), which provided V with a loan of £150,000. RA dealt with Sovereign Chambers LLP (“Sovereign”), which fraudulently presented itself as acting for S, the registered owner of the property. S had no intention of selling the property and was ignorant of Sovereign’s fraud. As a result of Sovereign’s deception, RA paid over the purchase monies (including £150,000 loan) to Sovereign in the belief that it was completing the sale. Completion did not take place and Abbey did not receive a valid charge over the property. The monies were never recovered. As part of its claim, Abbey sued RA for breach of trust.
Applying Lloyds TSB Bank Plc v Markandan & Uddin  EWCA Civ 65, and Nationwide Building Society v Davisons Solicitors  EWCA Civ 1626, the Judge held that RA had no authority to release the trust funds in the circumstances in which it did. Therefore by paying away the trust property (i.e. the advance) without receiving genuine documents to complete the transaction, the solicitors were in breach of trust.
In deciding that RA was entitled to relief under section 61 Trustee Act, the Judge decided that the correct approach was similar to that adopted in cases concerning relief under section 727(a) Companies Act 1985, such as Barings Plc v Coopers v Lybrand (No 7)  EWHC 1319. Thus a person may have acted “reasonably” for the purposes of the statutory provision even though he/she acted negligently if their negligence was “technical and minor in character” and not “pervasive and compelling”. The Judge concluded that RA had acted reasonably: none of the criticisms made of the solicitors were 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. The Judge also observed that the law generally (although not invariably) leant towards confining the responsibility of professional people to a duty to take reasonable care and in particular, it did not readily impose on them responsibility for loss resulting from the fraud of others.
This case provides further analysis as to how a court might exercise its discretion under section 61 Trustee Act and it illustrates the point that a solicitor guilty of negligence that was “technical and minor in nature” might still obtain relief.