HH Judge Pelling QC:
Introduction
- This is a claim arising out of the purported sale to the claimant of 35 Merton Hall Gardens, Wimbledon ("the property") by a fraudster who claimed to be, but was not, 'Mr Nicholas Robert Dawson', the registered proprietor of the property. Where I refer to Mr Dawson hereafter I am referring to the fraudster, not the true registered proprietor of the property. By the time the fraud was discovered, the whole of the purchase price (£470,000 odd) had been paid by the claimant to the registered conveyancer retained by him to act on his purchase of the property (the second defendant ("HOC")), by HOC to Mr Dawson's solicitors (the first defendants ("ACC")), and by ACC to an account at a bank in Dubai on the instructions of Mr Dawson. None of the money paid over by the claimant has been recovered.
- It is common ground that there was never a genuine completion of the transaction notwithstanding the provision of a TR1 signed by Mr Dawson and that the monies paid away by HOC to ACC and by ACC to Mr Dawson's order were payments made in breach of trust and thus that both defendants are liable to the claimant for breach of trust. It is also common ground that the claimant has no other claims available to him as against ACC but he sues HOC not merely for breach of trust but also for breach of contract and duty.
- The payments I have referred to took place in October 2012. These proceedings were commenced initially against ACC in July 2013. By an Order made on 10 April 2014, judgment was entered for the claimant against ACC on the claimant's claim that the purchase money had been paid away by ACC in breach of trust with a direction that the application by ACC for relief under s.61 of the Trustee Act 1925 be determined at trial. HOC was joined as a defendant in November 2014. HOC admitted breach of trust by its Defence but applied for relief under s.61. By its Defence, HOC has denied liability for breach of contract and/or duty. Both defendants have issued Contribution Notices against the other. No allegations of dishonesty are made by the claimant against either defendant or by either defendant against the other. In the result the issues to be determined at this trial are:
i) Whether either defendant should be granted relief under s.61;
ii) Whether HOC is liable to the claimant either for breach of contract or negligence; and
iii) Whether and if so what contribution should each defendant be ordered to bear in respect of any liability that they might have to the claimant.
- The trial took place on 15-18 March 2016. I heard oral evidence from the claimant, Mr Charles Bennett, a mortgage broker and advisor to the claimant, Mr A'Court of ACC, Mr Martin Beach, a licensed conveyancer and director of HOC, and Mr Mark Abrahams, the owner of an estate agency called Mark Ashley & Co, the agents who introduced the claimant to the property.
The Facts
- There is relatively little in dispute between the parties at a factual level. On or about 20 September 2012, Mr Dawson retained ACC to act on his behalf in relation to the sale of the property. Mr Dawson's instructions to Mr A'Court were that he was not living at the property; the property was vacant and had been givcn to him by his father in 2008 and that a speedy exchange and completion would be required because he needed the money. Mr Dawson told Mr A'Court that he was living at Flat 1, 14 Market Street, in Maidenhead. He produced a water bill dated 20 August 2012 addressed to him at that address, an electricity bill dated 28 August 2012, also addressed to him at that address, a bank statement addressed to Mr Dawson and his wife at that address for the period 10 July to 9 August 2012 and what appeared to be a British Passport for Mr Dawson. It is common ground that the passport was a forgery but it is not alleged that Mr A'Court should have been able to detect that such was the case.
- On 21 September 2012, Mr A'Court sent to Mr Dawson by email a copy of ACC's standard client care letter, some property information questionnaires that Mr A'Court asked Mr Dawson to complete, sign and return to him, and informed him that he was applying to the Land Registry for Office Copy Entries for the property. As is apparent on their face, Office Copy Entries were issued to ACC on 21 September 2012. Those showed the registered proprietor to be:
"(06.05.2008) PROPRIETOR: NICHOLAS ROBERT DAWSON of 35 Merton Hall Gardens, Wimbledon
and of 163 Huntingdon Road, Cambridge
(06.05.2008) The value as at 6 May 2008 was stated to be between £200,001 and £500,000
"
As will be appreciated, none of the utility bills supplied by Mr Dawson to ACC were addressed to him at either the property or 163 Huntingdon Road, Cambridge ("the Cambridge address"). It is common ground, but in any event I find, that had ACC attempted to contact Mr Dawson at the Cambridge address they would have made contact with the real owner and the fraud would have failed. I make this finding because, when an attempt was made to register the claimant's title, the Land Registry made contact with (as it turned out) the true owner at the Cambridge address and it was this that led to the discovery of the fraud. Mr A'Court maintained in the course of his evidence that it would have been wrong for him to have attempted to contact Mr Dawson at the Cambridge address without seeking instructions from him to do so. He accepted however that he did not seek such instructions. I am satisfied that it did not occur to Mr A'Court to do so. Mr A'Court could have asked for utility bills or council tax documentation for the property. Given Mr Dawson's instructions that the property was empty this ought not to have been a difficulty. Mr A'Court did not do so. It was common ground that the valuation as set out in the Office Copy Entries was consistent with the transfer to the registered proprietor being by way of gift since it gives a value in a range rather than a price paid.
- On or about 25 September 2012, Mr Dawson returned the property information forms. The Property Information Form included the question "When was the property purchased?" The answer that Mr Dawson gave was "[MAY] Month [----manuscript crossing out ---] 2008 year". The text that is in bold was inserted in manuscript by or on behalf of Mr Dawson. The text that is not in bold was part of the printed form. It looks to me as though the form provided empty square bracketed space for the insertion of the month and the year. Thus I am not able to accept Mr Marshall's submission that the answer given was wrong as to date. Accepting his submission on this point involves reading as "1" what is in fact a square bracket. Whilst the copying is not perfect, I am satisfied that would be wrong.
- Mr Marshall suggested that the fact that Mr Dawson had responded to a question asking about the date of purchase when in fact Mr Dawson had said the property had been given to him ought to have put Mr A'Court on notice of a possible problem that required further investigation or discussion with Mr Dawson. In my judgment that point would not be justified when taken in isolation given that the response was to a printed question and there was no alternative provided for sellers of property given to the vendor. It may be more significant however when considered in the round with the other factors to which I refer below.
- Question 9 of the Home Use Form asked whether any building work had been carried out to the building while in the ownership of the vendor to which question Mr Dawson had answered "no". However, a few days later solicitors acting for the first proposed purchaser of the property requested a Certificate of Lawfulness and a Building Control Certificate in respect of building work that a local authority search had revealed had been carried out at the property. As I explain below, Mr Dawson did not dispute that building work had been carried out when this request was passed to him by ACC. This is an inconsistency that may on one view suggest ignorance on the part of Mr Dawson as to what had happened at the property. However other explanations are possible and on its own the significance of this point must be open to doubt. However that is not the central point. It will be necessary to consider all the information available to ACC together at key stages for the purpose of deciding the issues that arise on ACC's claim for relief under s.61 rather than each item of information separately.
- By an email dated 25 September 2012, Mr Dawson informed Mr A'Court that he had a potential buyer, that his name was Mr Crompton and that his solicitors were Peacock & Co. ("Peacocks"). By an email of the following day, Mr Dawson told Mr A'Court that he had agreed a price with Mr Crompton of £430,000 on condition that the sale completed by 2 October 2012 that is a period of 7 days. Although there was some suggestion that property transactions could be completed in a shorter period than this, in my judgment that does not detract from the fact that this was on any view a speedy transaction when considered in the context of a sale of an investment residential property.
- On 26 September 2012, Peacocks wrote to ACC by a letter sent by email that referred to Mr Alexander Barnett of Lakeside Real Estate but did not explain who that person was. The letter referred to an offer by Peacocks' client (Andy Crompton Limited) of £420,000 subject to contract that is £10,000 less than the price identified by Mr Dawson. The next day, ACC wrote to Peacocks referring to an agreement to sell subject to contract at a price of £430,000 and enclosing various documents including a draft agreement and the three property questionnaires completed by Mr Dawson. By an email of the same date, Mr A'Court asked Peacocks to confirm that their client would be in a position to complete by 2 October 2012.
- By an email of 30 September 2012, Mr Dawson informed Mr A'Court that he had renegotiated the price with Mr Crompton up to £440,000 for completion on 2 October 2012. Mr A'Court acknowledged this email on 1 October 2012 in which Mr A'Court expressed "
severe doubts
" that the transaction could be completed by 2 October given the lack of any action by Peacocks. By an email of the same date but a little later in the day Mr Dawson in effect confirmed that he had agreed to extend the deadline for completion to 3 October.
- Later that day, Peacocks sent their first letter of substance relating to the transaction to ACC. In it they informed Mr A'Court that their understanding was that completion was now agreed for 3 October 2012 and then said this:
"We are now in receipt of our Local Authority Search and note there are two entries as follows:
- Certificate of Lawfulness
issued in respect of a proposed rear dormer roof extension
- Building Control Notice
in relation to the forming of an opening to create kitchen/diner.
Please provide these documents.
Further we note from the title that there is a right of way over the passage lea(d)ing from the back into Merton Hall Gardens. We understand however that this passageway has been built over, and we would therefore be grateful if your client could on completion provide a sworn Statutory Declaration to confirm for how long the access way has no(t) been used.
we enclose a draft Transfer for signature by your client together with Requisitions on Title.
"
Mr A'Court forwarded this to Mr Dawson by email on 1 October. He asked Mr Dawson to supply the planning documents and warned that if he had to apply to the local authority for them that would result in delay. He also asked for instructions in relation to the Statutory Declaration and again warned that this requirement by Peacocks would cause delay. Mr A'Court did not consider, or take any action in relation to, the apparent contradiction between the information contained in the letter and what Mr Dawson had said in the Home Use Form concerning building work at the property.
- By an email sent by Mr Dawson to Mr A'Court on 2 October 2012, Mr Dawson said that he was "
extremely disappointed
" by the questions because he had given Mr Crompton "
an Extremely large discount as he is a cash buyer and has agreed to complete this Wednesday
" He asked whether the requests were delaying tactics and asked for advice if they were. He also said that he had another cash buyer for the property who was willing "
to purchase asap without delay". Mr A'Court responded by email the same day in effect saying that he could not judge whether the intention was to delay but that the requests were reasonable, that there was no guarantee that any other buyer's solicitors would not raise similar requests and suggesting that Mr Dawson offer to extend the deadline by two days, informing the buyer that it must complete by then or Mr Dawson would withdraw.
- On Wednesday, 3 October 2012, Mr Dawson sent an email to Mr A'Court (a) giving instructions to prepare the Statutory Declaration (b) informing Mr A'Court that he did not have the building documentation because it had been his father that had made the applications and (c) saying "
I would like to complete on Monday or Tuesday of next week so that Mr Crompton's solicitors are happy with all The paper work
". Monday was 8 October and Tuesday was 9 October. It should have been apparent to Mr A'Court that Mr Dawson was content to supply the statutory declaration, that it would be necessary for Mr A'Court to get the building documentation from the local authority, and that Mr Dawson was content for completion to take place on either 8 or 9 October. Mr A'Court had yet to supply replies to the Requisitions.
- There then followed a critical exchange of emails between Peacocks, Mr A'Court, and Mr Dawson. On 3 October (0940), Peacocks emailed Mr A'Court as follows:
"
We write further in this matter, and at the time of writing, cannot trace having received Replies to Requisitions on Title from you.
Can you please confirm that you have verified your client's identity to meet with Money Laundering Regulations? Further, our client has asked for confirmation of the Hospital that your client works at in Abu Dhabi?
"
Mr A'Court responded to this email on 3 October (1238) in these terms:
"We have had produced to us evidence of our client's address in the UK and seen his UK passport. We are sending him your email asking him to give us instructions. We will fax you replies to your requisitions."
It would appear that this email was copied to Mr Dawson. On 3 October (1326), he emailed Mr A'Court in these terms:
"I have just read the email from the buyers solicitors requesting that there client Mr Crompton wishes me to produce evidence of where I work.
Please inform the buyers solicitors I no longer wish to proceed with the sale to Mr Crompton as I now feel that he is trying to prolong the transaction and may not proceed to completion which would leave me in a predicament as I may loose (sic) the other possible buyers
"
Mr A'Court emailed Peacocks on 3 October (1404) requesting the return of the papers sent to them on behalf of Mr Dawson and by a letter from Peacocks dated 4 October 2012, those papers were duly returned.
- The effect of this correspondence is reasonably clear. All previous requests for information had been agreed to by Mr Dawson. The revised completion date of either 8 or 9 October was still 5-6 days away. The request for details as to where Mr Dawson worked could have been supplied without difficulty by return of email and certainly well ahead of Mr A'Court obtaining the building certification, supplying replies to the Requisitions and preparing the Statutory Declaration. Had any information concerning Mr Dawson's employment been supplied however, it would have enabled enquiries to be made by Peacocks concerning Mr Dawson, as would have been obvious to Mr Dawson. It is probable that any response would either have been false, and would have been shown to be false if investigated, or would have revealed that Mr Dawson had supplied false information to Mr Crompton. Either way it is inferentially likely that the transaction would have broken down at that point.
- It ought to have been apparent to Mr A'Court that it was exclusively the request for information about Mr Dawson's employment that caused him to withdraw from the sale to Andy Crompton Limited. Mr A'Court agreed in cross-examination by counsel for HOC that it was this request alone that was the cause of Mr Dawson's instructions to withdraw from the transaction. He also accepted that he had not at any stage been instructed by Mr Dawson that he worked abroad. When asked whether if he had pressed Mr Dawson to supply the requested information that would have avoided the fraud that followed, he disagreed because he maintained that someone who produced a forged passport could produce a forged document demonstrating his employment. That misses the point because any information supplied could have been checked.
- It is necessary at this point to consider what information was or ought to have been apparent to Mr A'Court by the early afternoon of 3 October 2012. He knew that:
i) The property was unoccupied;
ii) The property was unencumbered;
iii) The property was of comparatively high value;
iv) Completion was being pressed for on an expedited basis by the vendor;
v) The Office Copy Entries for the property contained an alternative address for service in Cambridge;
vi) Instructions had not been sought from Mr Dawson that would permit ACC to write to the Cambridge address nor had any explanation been sought from him as to why the address he had supplied was not the Cambridge address;
vii) Mr Dawson had not supplied any documentation that showed a link between him and the property nor had he been asked for such material. The terms of Mr A'Court's email to Peacocks sent on 3 October at 1238 shows that Mr A'Court fully understood this to be the position. Whether what had been obtained was sufficient to meet with Money Laundering Regulations (taking account of not merely the Regulations themselves but guidance supplied to the profession by the Law Society) is something that I turn to later in the judgment. However, if it was not, it is difficult to escape the conclusion that Mr A'Court ought to have known that such was the case;
viii) Mr Dawson had not at any stage told Mr A'Court that he was employed abroad whether in Abu Dhabi or otherwise so that Peacocks' suggestion that Mr Dawson was so employed was the first time that Mr A'Court had heard that suggestion but Mr Dawson had not denied the truth of the suggestion when responding to Peacocks' enquiry;
ix) There was an unexplained inconsistency between the information supplied by Mr Dawson in the Home Use Form in relation to building works at the property and the information that had come to light as a result of Peacocks' local authority search; and
x) The sale to Peacocks' client was brought to an end by Mr Dawson solely because he had been requested to supply information as to his employer in circumstances where (a) there were at least 5 days to go before Mr Dawson's most recently imposed deadline for completion was reached, (b) the information could have been provided with ease and with far less delay than the other matters then outstanding (replies to Requisitions and the completion of the Statutory Declaration) and (c) Mr Dawson had not objected to the provision of the information on any ground other than because he apparently thought it was a delaying tactic but where the information could have been provided almost immediately and where any delay would be concurrent with at least that resulting from the need to complete the Statutory Declaration.
It was this last factor that was described by Mr Hale in his closing submissions as "precipitous and deeply suspicious" and "
a matter which no reasonably competent conveyancer could have ignored
".
- It is now necessary to turn to the facts relevant to the purported sale to the claimant. It is necessary to consider separately what was happening both from the claimant's and HOC's standpoint, and that of ACC.
- By 15 October 2012, the claimant had agreed with Mr Abrahams that he would purchase the property subject to contract at a price of £470,000, which he intended to fund by way of a loan secured against the property that was to be obtained for him by Mr Bennett, Mr Abrahams had introduced the claimant to Mr Beach and ACC and the claimant had made initial contact with Mr Beach. On 15 October, Mr Dawson emailed Mr A'Court informing him of an offer through Mark Ashley & Co at £470,000 and that he had forwarded Mr A'Court's details to the agent, and by a letter of that date Mr Abrahams formally provided to ACC details of the sale subject to contract to the claimant. Mr Beach also made initial formal contact with Mr A'Court by email of that date and Mr A'Court responded sending various documents to Mr Beach including a draft contract, Office Copy Entries and copies of the three questionnaires that I mentioned earlier. No attempt had been made to correct what was now the known error in the Home Use Form concerning building works. Finally, Mr Dawson instructed Mr A'Court that there was to be a simultaneous exchange and completion by no later than 29 October.
- On 16 October 2012, Mr Beach wrote to Mr A'Court by email referring to Entry 2 in the proprietorship register for the property, the text of which is set out earlier in this judgment. He then continued:
"We assume there has been a deed of gift and we await details. We assume an Indemnity policy has been taken out which we will need and that the conditions of the policy have been complied with.
Please also supply a bankruptcy search against your client"
The reference to an Indemnity policy is to a insurance policy obtained by a selling donee of property which insures against the risk that the donor of the property will be declared bankrupt in circumstances that enable the bankrupt donor's trustee to recover the property as being a disposal at an undervalue. It is common ground that neither the claimant nor Mr Beach were aware that Mr Dawson had been given the property until Mr Beach inspected the proprietorship register. As will become apparent later in this judgment, the claimant alleges against HOC that it breached its duty of confidence by copying letters sent by Mr Beach in connection with the proposed sale to the claimant to Mr Abrahams, which in turn were copied to the fraudsters that is the individual I have been referring to as Mr Dawson and another individual called Mr Alexander Barnett. Mr Barnett was first mentioned in the initial letter from Peacocks to Mr A'Court. Quite what his role in the fraud was is unclear and does not matter for present purposes. Potentially, what matters is that at least some of the letters being written by Mr Beach on behalf of the claimant were being blind copied by Mr Beach to Mr Abrahams who in turn was passing them to his clients that is Mr Barnett (whom Mr Abrahams understood to be an agent based in Dubai who was acting for Mr Dawson) and Mr Dawson. One of the letters that was blind copied in this manner was the letter of 16 October referred to earlier in this paragraph. Mr Beach accepted in the course of his cross-examination that it was a breach of his duty of confidence to have copied this correspondence to Mr Abrahams without the claimant's consent. Mr Hale accepted in the course of his closing submissions that this conduct on the part of Mr Beach was unreasonable for the purposes of considering HOC's application for relief under s.61 of the Trustee Act 1925. Although other letters were blind copied it is this one on which the claimant puts particular reliance. I return to this issue further later in this judgment.
- Later on 16 October, Mr Beach sent to Mr A'Court a letter that contained "Additional Enquiries" and Requisitions on Title. The Additional Enquiries included at 6(2), the request that Mr A'Court:
"Please confirm you are familiar with the sellers and will verify they are the sellers and check ID to support same"
The Requisitions included at paragraph 12 a request to similar effect. Mr A'Court responded to this document by email dated 17 October 2012, mistakenly describing as its subject "Re Mickey Mouse". The document contains a number of obvious typographical errors. I have eliminated them from the relevant parts of the email that I reproduce below because I do not consider they add anything to the substance of this dispute. In so far as is material that email said:
"We refer to your recent emails, all of which have been forwarded to our client who is currently abroad and we believe will not be returning here until after completion.
We have also spoken to you and also to our client and to the selling agents by telephone, all today.
1.
For the avoidance of doubt, we have no documents whatsoever relating to this property, save for the ones we have already sent to you
3.
We have our client's authority to sign the contract on his behalf.
As to the Additional Enquiries
2) As explained to you over the telephone, prior to being approached to act on the sale we have no personal knowledge of Mr Dawson, but we confirm that we have met him in person and have seen his passport (and retain a copy of the photo page) together with utility bills etc showing his UK address as notified to us.
"
The Enquiry that Mr A'Court had been asked to respond to was one that asked him first to confirm that he was familiar with the sellers. He answered that in terms that made clear that he was not, other than as a result of being instructed to handle the sale of the property. Secondly he had been asked to confirm that he would verify that the sellers (meaning by clear implication from the context his client) was the seller and in connection with that would check identification. Although this Enquiry is not clearly expressed, in context it could only be a request for confirmation that Mr A'Court would verify that his client was the registered proprietor of the property and thus entitled to sell it. As Mr Beach accepted in the course of his cross-examination by Mr Flenley QC, the reference to verification in the question is to a link between the property and the individual purporting to sell. The answer given did not suggest that any further checks would be undertaken beyond those referred to in the answer and the reference to "
his UK address as notified to us
" was on any view a highly ambiguous answer because it did not clearly state that the address given was either that of the property or that it was the Cambridge address that appeared on the Register.
- There is no note of the telephone conversations to which Mr A'Court refers in his reply. Mr A'Court's evidence was that there was a discussion between him and Mr Beach about due diligence and that in reply he had told Mr Beach what he had received in the same terms as set out in the written response referred to above. Earlier on in his evidence, Mr A'Court had accepted that he had not supplied Mr Beach with the Maidenhead address supplied to him by Mr Dawson and that he had not told Mr Beach that the address that Mr Dawson had supplied did not connect him to the property. In relation to the conversation between Mr Beach and Mr A'Court that Mr A'Court refers to in the 17 October email, Mr Hale asked Mr A'Court in cross-examination[1] "Is it possible you conveyed to Mr Beach your belief that your client was the owner?" Mr A'Court's response was "I told everyone the checks I had made. I was satisfied that he was the owner". Mr Beach did not tell the claimant about the ambiguous nature of Mr A'Court's answer.
- Mr Beach's evidence in relation to this when cross-examined by Mr Marshall was he was satisfied with the answer that was given because the question is designed to ensure that the vendor's solicitors had carried out customer due diligence and the answer he received satisfied him that he had. He maintained that he relied on Mr A'Court to have carried out the exercise adequately. His explanation for not telling the claimant about the ambiguity in the answer was that he was content with the answer but when pressed further by Mr Marshall on this point he said of the answer that "I thought it gave me sufficient security. I thought it was good enough because he had seen the passport and utility bills. I accept I didn't know the address to which they related. I am still satisfied the answer showed a sufficient link between the property and the vendor." When cross-examined by Mr Flenley it was put to Mr Beach that the answer given by Mr A'Court did not establish a link between the vendor and the property. Mr Beach replied "they referred to utility bills. I don't know what they were saying. I don't know what address they were referring to" yet when Mr Flenley suggested to Mr Beach in his very next question that the answer given could not give Mr Beach any comfort concerning the link between the property and Mr Dawson, his reply was that "I felt comfortable with the answer".
- I am not satisfied that the purpose of the enquiry was limited in the way asserted by Mr Beach in his answers to Mr Marshall referred to above. In my judgment the question was concerned with ensuring that the vendor was entitled to sell the property that in other words he was the registered proprietor of the property. That is what Mr Beach in truth understood the question to be about and any reasonable conveyancer would have appreciated that to be so. Indeed, as I have said, Mr Beach accepted by implication that such was the purpose of the question when cross-examined by Mr Flenley by his answers referred to in paragraph 25 above, and because he did not assert in his answers set out earlier in this paragraph that he had no interest in establishing a link between Mr Dawson and the property but only that he was satisfied that the answer established such a link. In my judgment Mr Beach could not reasonably have been satisfied with the answer that had been given without at least asking further clarificatory questions and obtaining satisfactory answers. That is so because Mr Beach could have no idea either from the conversation that he had with Mr A'Court or from the written answer that Mr A'Court supplied whether the information obtained by Mr A'Court linked Mr Dawson to the property. Indeed, Mr Beach accepted that at one stage in his cross-examination as I have explained above. I would go further: Mr Beach was aware that ACC had "
no documents whatsoever relating to this property
" because Mr A'Court had said so in his email dated 17 October 2012. Thus he ought reasonably to have concluded that it was at least highly probable that there was nothing in ACC's possession to link Mr Dawson to the property.
- There is little more that is relevant factually. Contracts were exchanged using Formula B on 22 October 2012 and a purported completion occurred on 24 October. The claimant funded the purchase in the end from sums raised by him from a variety of sources but not from lending secured on the property since a survey could not be completed within the time frame set by Mr Dawson. As I have explained the purchase money was transferred by HOC to ACC and by ACC to an account at a bank in Dubai on the instructions of Mr Dawson. The fraud came to light and the claimant was never registered as proprietor of the property.
Legal Framework
Money Laundering and Client Identification
- The Money Laundering Regulations 2007 ("MLR") contain the core obligations in this field. The purpose of the Regulations, and the statutory provisions that empower the making of them, is the prevention of the use of the financial system for the purposes of money laundering, as defined in s.340 (11) of the Proceeds of Crime Act 2002. ("POCA"), which provides that:
"(11) Money laundering is an act which
(a) constitutes an offence under section 327, 328 or 329,
(b) constitutes an attempt, conspiracy or incitement to commit an offence specified in paragraph (a),
(c) constitutes aiding, abetting, counselling or procuring the commission of an offence specified in paragraph (a), or
(d) would constitute an offence specified in paragraph (a), (b) or (c) if done in the United Kingdom."
Ss.327-329 in so as is material provide:
"327 Concealing etc
This section has no associated Explanatory Notes
(1) A person commits an offence if he
(a) conceals criminal property;
(b) disguises criminal property;
(c) converts criminal property;
(d) transfers criminal property;
(e) removes criminal property from England and Wales or from Scotland or from Northern Ireland.
328 Arrangements
This section has no associated Explanatory Notes
(1) A person commits an offence if he enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person.
329 Acquisition, use and possession
This section has no associated Explanatory Notes
(1) A person commits an offence if he
(a) acquires criminal property;
(b) uses criminal property;
(c) has possession of criminal property
"
What constitutes "criminal property" and its associated concepts are defined by s.340 in these terms:
"340 Interpretation
This section has no associated Explanatory Notes
...
(2) Criminal conduct is conduct which
(a) constitutes an offence in any part of the United Kingdom, or
(b) would constitute an offence in any part of the United Kingdom if it occurred there.
(3) Property is criminal property if
(a) it constitutes a person's benefit from criminal conduct or it represents such a benefit (in whole or part and whether directly or indirectly), and
(b) the alleged offender knows or suspects that it constitutes or represents such a benefit.
(4) It is immaterial
(a) who carried out the conduct;
(b) who benefited from it;
(c) whether the conduct occurred before or after the passing of this Act.
(5) A person benefits from conduct if he obtains property as a result of or in connection with the conduct.
(6) If a person obtains a pecuniary advantage as a result of or in connection with conduct, he is to be taken to obtain as a result of or in connection with the conduct a sum of money equal to the value of the pecuniary advantage.
(7) References to property or a pecuniary advantage obtained in connection with conduct include references to property or a pecuniary advantage obtained in both that connection and some other.
(8) If a person benefits from conduct his benefit is the property obtained as a result of or in connection with the conduct.
(9) Property is all property wherever situated and includes
(a) money;
(b) all forms of property, real or personal, heritable or moveable;
(c) things in action and other intangible or incorporeal property.
(10) The following rules apply in relation to property
(a) property is obtained by a person if he obtains an interest in it;
(b) references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest or power;
(c) references to an interest, in relation to land in Scotland, are to any estate, interest, servitude or other heritable right in or over land, including a heritable security;
(d) references to an interest, in relation to property other than land, include references to a right (including a right to possession)."
- It is important to emphasise that the MLR apply to a large number of different types of transactions carried on by a wide variety of different commercial and professional service providers. It is inevitable therefore that the obligations imposed by the MLR are generically expressed. It follows that what the MLR will require will depend at least in part on the circumstances that give rise to the obligation. The MLR apply to all persons who are "Relevant Persons" as defined in Reg.3. These include all independent legal professionals see Reg.3(1)(f). That definition is further expanded upon in Reg3(9) as meaning a firm or practitioner who by way of business provides legal or notarial services to others:
"
when participating in financial or real property transactions concerning:
(a) the buying and selling of real property or business entities;
(b) the managing of client money, securities or other assets;
(c) the opening or management of bank savings or securities accounts;
(d) the organisation of contributions necessary for the creation, operation or management of companies; or
(e) the creation, operation or management of trusts, companies or similar structure
and, for this purpose, a person participates in a transaction by assisting in the planning or execution of the transaction or otherwise acting for or on behalf of a client in the transaction"
It is common ground that both HOC and ACC were Relevant Persons in relation to the sale of the property to, and purchase of it by, the claimant because they were independent legal professionals participating in a transaction concerning the buying and selling of real property. Reg.7(1) imposed on each an obligation to apply "customer due diligence" when establishing a business relationship or carrying out an occasional transaction. Customer due diligence is defined by Reg.5(a) as "
identifying the customer and verifying the customer's identity on the basis of documents, data or information obtained from a reliable and independent source
" and by Reg.5(c) as "obtaining information on the purpose and intended nature of the business relationship".
- The effect of these requirements in the context of a conveyancing transaction is extensively considered both in the Law Society's Conveyancing Handbook ("the Handbook") and the Law Society's Property and Registration Fraud Practice Note, ("the Note"), the relevant version for present purposes being that which states the law as at 11 October 2010.
- The Handbook warns practitioners that the MLR "
require solicitors to take a risk-based approach to client due diligence including the obligation to obtain satisfactory evidence of their client's identity
". This means that the approach that should be adopted will depend upon the circumstances surrounding the particular transaction. What will be appropriate in relation to a sale by the owner-occupier of a modestly priced residential property that is subject to a building society charge may not be appropriate in relation to the apparent sale of a high value unencumbered property being offered for sale by a registered proprietor whose claimed address is not that of the property being sold or any other address for service on the Register.
- The Note is addressed specifically to "All solicitors who carry out work involving Land Registry applications" and represents the Law Society's view of good practice. The Note warns specifically of a rising incidence of "
fraudsters targeting the properties of
individuals
" by means that can include identity fraud see Paragraph 1.2. At Paragraph 2.3, the Note identifies certain properties as vulnerable to registration frauds. Five types of property are listed including two applicable in this case being (1) unoccupied properties and (2) high value properties without a legal charge. It is noteworthy that in Paragraph 2.4, the Note repeats the advice of the Land Registry that the registered proprietors of vulnerable properties should "
keep any addresses they have registered for service at Land Registry up to date". Whilst it may not have been appropriate for Mr A'Court to advise Mr Dawson to this effect, given that he was attempting to sell the property, this advice emphasises the point that the address given by Mr Dawson was not an address registered for service at the Land Registry and thus was something that ought reasonably to have put Mr A'Court on enquiry as to why the address he was supplied with was not registered, and/or of the need to communicate with Mr Dawson at that address, or at least to seek instructions to do so for the purposes of complying with the MLR. This was all the more the case when it is remembered that he had not got, or been given sight of, any documents relating to the property apart from the Office Copy Entries that he had obtained and the property information forms completed by Mr Dawson referred to earlier in this judgment.
- Paragraph 3.1 of the Note warns that identity documents may not conclusively prove that the person is the person they are purporting to be or that such person is the registered proprietor of the property. This leads to Paragraph 3.1.1, which summarises the obligations imposed by Reg.5 of the MLR including in particular Reg.5(c) before saying of this provision that it "
means more than just finding out that they want to sell a property. It also encompasses looking at all the information in the retainer and assessing whether it is consistent with a lawful transaction. This may include considering whether the client is actually the owner of the property they want to sell". As is apparent from the terms of the Note however, it will not be every case in which such a consideration will be necessary or even appropriate. As is emphasised in the part of the Handbook set out above, in each case a judgment will be required based on the risk posed by the transaction in question. In my judgment the factors pointing towards the need for such consideration in this case include that the property was a vulnerable property because it was (i) unoccupied (ii) unencumbered and (iii) high value and also because (iv) it was one where the address given by Mr Dawson was not either of the addresses for service that appeared on the proprietorship register. In addition, by the time Mr A'Court had to consider the sale to the claimant, the further factors then known to him that pointed towards the need for such an approach included also those referred to in paragraph 19(viii) to (x) above. Further, Mr A'Court knew that Mr Dawson was overseas and would not be returning to the UK before completion see the email of 17 October referred to in paragraph 23 above.
Section 61 Trustee Act 1925
- S.61 provides:
"If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust,
but has acted honestly and reasonably and ought fairly to be excused for the breach of the trust
then the court may relieve him either wholly or partly from personal liability for the same."
- The three authorities which all parties are agreed contain the principles so far established in relation to s.61 in the context of conveyancing transactions are Lloyds TSB plc v. Markandan & Uddin [2012] EWCA Civ 65, Nationwide Building Society v. Davisons Solicitors [2012] EWCA Civ 1626 [2013] PNLR 188 and Santander UK v. RA Legal Solicitors [2014] EWCA Civ 183 [2014] PNLR 420. Each was concerned with claims for relief by solicitors who acted for purchasers and lenders to purchasers.
- As will be apparent from the language of the section, it imposes at least a two stage test - being first, whether the trustee concerned acted honestly and reasonably and secondly, whether in all the circumstances, the trustee ought fairly to be relieved of personal liability either wholly or in part - see Santander (ante) per Briggs LJ at [20] and [33], and Sir Terence Etherton C at [107]. As I indicated at the outset of this judgment no question of dishonesty arises in these proceedings and thus the threshold question in relation to each defendant in this case is whether they acted not only honestly but also reasonably. If they did not then in the circumstances of this case each is under an immediate obligation to re-constitute the trust see Target Holdings Limited v. Redferns [1996] 1 AC 421 per Lord Browne-Wilkinson at 438G 439B, where the applicable general principle is restated, and AIB Group (UK) plc v. Mark Redler & Co Solicitors [2014] UKSC 58; [2015] AC 1503 per Lord Toulson at [66] - [67].
- As I have said already each of the three authorities referred to in paragraph 35 above are concerned with claims for relief by solicitors who acted for purchasers and lenders to purchasers. There is no reported authority that has been drawn to my attention that concerns a vendor's solicitor. This led Mr Flenley to submit that this case raises a novel point of law namely: "
is the vendor's solicitor, who did not act for the claimant, to be subjected to the same rigorous regime under s.61 as a buyer's solicitor?" Mr Flenley's submission is that a solicitor who unknowingly acts for a fraudster in a conveyancing transaction does not ordinarily owe a duty of care to the party on the other side of the transaction. This much is common ground between the parties. It is submitted by Mr Flenley that the rationale behind this principle ought to lead to the conclusion that a more favourable reasonableness test should be applied to a vendor's solicitor seeking to rely on s.61. In advancing this argument Mr Flenley relies on AIB Group (UK) plc v. Mark Redler & Co., Solicitors (ante) which he submits is authority for the proposition that the liability of a solicitor in equity should not exceed his liability at common law.
- It is convenient first to identify the principles relevant to the application of s.61 in a conveyancing context established by the three authorities referred to in paragraph 35 above. In summary they are as follows:
i) The reasonableness test that is applied to a solicitor who parts with completion moneys without obtaining completion is necessarily a high one because of the need to interpret s.61 consistently with equity's high expectation of a trustee discharging fiduciary obligations see Santander (ante) per Sir Terence Etherton C at [109]. It is therefore one which requires the solicitor concerned to have acted "
with exemplary professional care and efficiency
" and to be "
careful, conscientious and thorough
" see Lloyds TSB (ante) per Rimer LJ at [60] to [61], though the test remains one of reasonableness not perfection see Nationwide (ante) per Sir Andrew Morritt C at [48];
ii) The onus rests on the trustees concerned in this case the defendants to prove that they acted reasonably see Santander (ante) per Briggs LJ at [21], [55] and [103] and Sir Terence Etherton C at [111];
iii) Conduct that is completely irrelevant or immaterial to the loss (or which played absolutely no part in the occasioning of the loss) will usually be disregarded by the court in its assessment but a departure from best or reasonable practice that increased the risk of loss by fraud will not be, even if the court concludes that the fraudster would have achieved his goal even if the solicitor had acted reasonably see Santander (ante) per Briggs LJ at [25] to [27] so that the relevant act or omission must at least be connected to the loss see Sir Terence Etherton C's judgment at [108] [109]. It follows that if the trustee fails to prove that his unreasonable conduct played no material part in occasioning the loss then the trustee fails at the threshold stage see Sir Terence Etherton C's judgment at [111];
iv) In deciding whether a trustee has acted reasonably, it will usually be inappropriate to look at each complaint separately but rather will usually be a question to be resolved by looking at the relevant conduct taken as a whole and in the round see Santander (ante) per Briggs LJ at [97]; and
v) When considering the exercise of discretion, regard must be had to the effect of the grant of relief not only on the trustee but on the beneficiary and thus considerations such as the financial strength of the loser, and the availability of insurance to meet the loss are relevant considerations see Santander (ante) per Briggs LJ at [33].
- I now turn to Mr Flenley's submission concerning the applicability of these principles to a vendor's solicitor. In my judgment his submission that a lesser standard of reasonableness should be applied to a vendor's solicitor than to a purchaser's solicitor is mistaken and must be rejected. I reach that conclusion for the following reasons.
- It is well established that in general a vendor's solicitor does not owe a duty of care to a purchaser see Gran Gelato Ltd v. Richcliff (Group) Ltd [1992] Ch. 560 per Sir Donald Nicholls V-C at 570D-571F. The question I have to decide however is not whether a duty of care in tort is owed by the vendor's solicitors to the purchaser to take steps to detect fraud on the part of the ostensible vendor. Although it was alleged that ACC was in breach of a warranty of authority, until that allegation was abandoned a week before trial, it is not and never has been alleged that a duty of care was owed by ACC to the claimant.
- The question I am now considering arises only because, as is common ground, the vendor's solicitors (ACC) held the purchase money from when they received it until completion on trust for the purchaser as beneficiary. Since, as is again common ground, there was never a completion but nonetheless ACC paid the purchase money to the ostensible vendor, it follows that they did so in breach of trust and are thus liable to the purchaser. The vendor's solicitor is as much a trustee of the purchase money while it is in his possession pending completion as is the purchaser's solicitor. Whether the vendor's solicitor owes a duty of care in tort to a purchaser has nothing to do with whether he becomes a trustee of purchase money held by him pending completion.
- In my judgment, AIB Group (UK) plc v. Mark Redler & Co Solicitors (ante) is immaterial to the issue I am now considering because that authority is concerned with the measure of equitable compensation for breach of trust that applies where there has been a breach of a bare trust arising in the context of a commercial contract to which the trustee and beneficiary are parties see the judgment of Lord Toulson at [3] to [4] and [48]. Not merely is it accepted that there is not a contract between the claimant and ACC see paragraph 15(ii) of Mr Flenley's closing submissions but AIB Group (UK) plc v. Mark Redler & Co Solicitors (ante) was not concerned with the nature of duties owed by particular types of trustees, nor was it concerned with whether different standards of reasonableness should be applied to different types of trustees when applying s.61. It is authority not for the wide proposition for which Mr Flenley contends but for the narrower proposition that equitable compensation should be the same as if damages for breach of contract at common law were sought where "
the trust was part of the machinery for the performance of a contract
" because "
it would be artificial and unreal to look at the trust in isolation from the obligations for which it was brought into being
".
- The obligation in relation to purchase money is an absolute obligation not to release the money before completion as that concept is to be understood in this context see Lloyds TSB (ante) per Rimer LJ at [49]-[50]. The liability that arises from a breach of that obligation is strict because of equity's high expectations of a trustee discharging fiduciary obligations. Once it is found or admitted that a vendor's solicitor is a trustee of the purchase money and has parted with it in breach of trust, there is no obvious justification for interpreting s.61 more leniently in respect of such a breach of trust by a vendor's solicitor than would be the case in relation to such a breach by a purchaser's solicitor. In my judgment, once it is established (as it has been in this case) that a vendor's solicitor has acted in breach of trust in relation to purchase money, there is no logical basis for concluding that the reasoning of Sir Terence Etherton C in Santander (ante) at [109] should apply to a purchaser's solicitor but not a vendor's solicitor. Each are trustees. Each has breached the trust with which the purchase money was impressed and thus each has breached equity's high expectation of a trustee discharging fiduciary obligations. It follows therefore that for each the same standard of reasonableness applies though, of course, what each has to do in order to fulfil that standard may be different because of the different roles that each has in relation to the transaction.
- It is necessary for me to mention finally a subsidiary point made by Mr Flenley. He submits that Briggs LJ, at [3] of his judgment in Santander (ante), endorsed the principle that the standard of reasonableness is likely to be higher for a paid than an unpaid trustee. Since ACC were not paid by the claimant, Mr Flenley submits that this factor ought to mitigate the standard of reasonableness that is applied. I am not able to agree with this analysis. In my judgment this guidance is of no application to the issue I am now considering or to a case such as the present. My reasons for reaching that conclusion are as follows.
- Briggs LJ's guidance was expressly based on Paragraph 39-145 of Lewin on Trusts, 19th Edition. The true distinction drawn in that paragraph, and the distinction that Briggs LJ was recognising in in Santander (ante), was between an unremunerated lay trustee on the one hand and a trustee such as a trust corporation acting for reward on the other. Secondly, it is clear that this paragraph relates to the grant of relief as an exercise of discretion, not to the threshold question and finally, and in any event, in my judgment where the trustee under consideration is a solicitor or licenced conveyancer who has committed a breach of trust in a conveyancing transaction in which he is professionally engaged, there is no obvious justification for distinguishing between a solicitor acting for a purchaser (who on this analysis is being paid by the beneficiary) and a solicitor acting for the vendor. As I have said already, the same standard of reasonableness applies to both, though what each has to do in order to fulfil that standard may be different.
The Claim against HOC
- Although ACC is the first defendant, it is convenient to consider first the position of HOC, the claimant's conveyancer. HOC acted throughout for the claimant and is sued not merely for breach of trust (which is admitted) but also in contract and tort.
- At the heart of the claim in contract and tort made by the claimant against HOC is an allegation that HOC failed to advise the claimant of the unsatisfactory response to the Additional Enquires and thereby failed to provide information to the claimant that he needed in order to make an informed decision whether to proceed so as to expose the claimant to a risk that he was unaware that he was running. There is also an allegation concerning breach of confidence that it will be necessary to consider only if and to the extent that the central points I have mentioned are not resolved in favour of the claimant.
- It is common ground that HOC was subject to regulation by the Council of Licenced Conveyancers ("CLC"), that the CLC had issued a Code of Conduct that was binding upon HOC and that the Code required HOC to deliver a number of outcomes of which one was that its clients had the information they needed to make informed decisions. Although no submissions were made either by Mr Marshall or Mr Hale concerning the principles applicable to a claim against a purchaser's solicitor or licenced conveyancer in contract and tort, it is I think common ground or should be that in general a solicitor or licensed conveyancer is not obliged to undertake investigations that are not expressly or impliedly requested by the client but that if in fact a solicitor or licenced conveyancer acquires information that may be of importance to a client, then it is the duty of the solicitor to bring that information to the attention of the client. This point is only significant in this case because Mr Beach said repeatedly in the course of his cross-examination that the question that HOC asked at Paragraph 6(2) of the Additional Enquiries was not one that was usually asked, that it was not standard conveyancing practice to ask such questions and that HOC no longer asked it. In my judgment that is not to the point because the question was asked, and because the answer received was clearly unsatisfactory for the reasons that I have set out earlier in this judgment. Mr Beach ought to have known that the answers were unsatisfactory, and ought to have told his client of the unsatisfactory responses received and advised his client the claimant not to proceed with the transaction until satisfactory responses had been received. After all, that is precisely what Mr Beach had said to Mr A'Court would be the consequence if an unsatisfactory response was received when raising the additional enquiries. In the letter of 16 October 2012, the preamble to the section containing the Additional Enquires said "
Please note we cannot advise client to proceed without full replies
".
- In my judgment HOC was in breach of contract and/or duty to the claimant in failing to inform him that (a) Additional Enquiry (2) had been raised, (b) that the purpose of that additional enquiry was to attempt to establish a link between the property and the apparent vendor, and (c) the answers received showed that (i) ACC had no documents whatsoever relating to this property, save for those already received (and thus for example they did not have the Deed of Gift of which Mr Beach had made enquiries by the earlier letter from him to Mr A'Court of 16 October 2012); (ii) ACC had no personal knowledge of Mr Dawson, and (iii) ACC had not verified, and could not confirm from the information available to them, or at least had not confirmed from the information available to them, a link between the vendor and the property, and (d) in consequence, there was a risk in proceeding with the purchase.
- It is now necessary for me to consider the claimant's evidence. I am satisfied that he was an entirely truthful witness and that the few errors identified in the course of cross-examination were innocent and were ones that he readily conceded when they were put to him. He fairly answered all questions put to him and made concessions where appropriate. I accept the evidence he gave.
- The claimant's oral evidence satisfied me that he was by nature a careful individual; that he had acquired a small number of investment properties and accumulated his life savings as a result of many years of work as an accountant and by careful management of his limited resources; and that his family's welfare was of the first importance to him. It was entirely clear from his evidence that while he was attracted to the property because he considered it represented good value (he considered it might have a market value of about £50,000 more than the asking price), he looked to his legal advisor to protect his interests. In his witness statement the claimant said that he had asked Mr Beach to conduct his legal work diligently see paragraph 27 and that his previous experience with solicitors acting for him in the acquisition of properties was that they would highlight any issues and ask him what he wanted to do. He was carefully c ross-examined on this issue by Mr Hale. It was put to him that he understood that he might lose the property if the transaction did not proceed at the speed demanded by Mr Dawson. He agreed with that. He accepted that he had been warned by his mortgage broker of the danger of a speedy completion. It was put to him that he was "desperate to secure the property" to which the claimant responded that he was "keen because I was getting the property at a good price". He then added that "I had to move quickly to get the property, that is why I told Mr Beach to move quickly but made clear I wanted it done properly". He agreed that he proceeded without a structural survey and did so because he had viewed the property and "
knew enough about the property to make a judgment". Mr Hale then suggested to the claimant that this was because he was prepared to accept more risk to get the property. The claimant replied "No. My legal risk was covered by my solicitor. I was prepared to take the surveying risk". This is consistent with the claimant's evidence that he managed his modest property portfolio and looked after the properties himself. It is consistent too with his careful inspection of the property before making an offer see paragraph 12 of his witness statement. Finally, Mr Hale asked the claimant about his likely reaction had he been given advice about the Additional Enquiries and ACC's responses. It was suggested to him that he would not have read and did not read the responses. He replied that he would not have read them unless he was told there was a problem, that he was in Mr Beach's hands and that he would have read them if he had alerted him to a concern. I accept that evidence not least because it accords with his previous experience when dealing with solicitors in relation to the acquisition of properties see paragraph 29 of his witness statement. I accept the claimant's evidence as summarised above.
- Had the information referred to at the end of paragraph 49 above been supplied to the claimant by Mr Beach it would then have been for the claimant either to decide either not to proceed or to seek advice from Mr Beach whether to proceed. It was not suggested to the claimant in the course of cross-examination that he would have proceeded in any event had this information been supplied to him and I have no hesitation in concluding that he would not have done so. Initially he had intended to raise the purchase price by mortgage but was forced to abandon that in the face of pressure for an early completion. He was able to complete only by what was intended to be short term borrowing from friends and family and resort to his cash life savings. He was not aware that this approach posed any risk of any sort at any stage until after the purchase money had been paid away to Mr Dawson's account in Dubai. In my judgment it is close to inconceivable that he would have proceeded on such a basis had he been advised as he should have been. In those circumstances the claim for damages for breach of contract and negligence succeeds. It was not suggested on behalf of HOC that any sum other than the sum claimed in these proceedings would be recoverable as damages.
- It follows from what I have said already that HOC has failed to discharge the burden of proving that it acted reasonably applying the test established by the case law referred to above and thus is not entitled to rely on s.61 of the Trustee Act 1925.
- Given the conclusions that I have so far reached it is not necessary that I say anything more about the breaches of confidentiality that occurred and which HOC admit was unreasonable for the purposes of s.61. It is difficult to see how that could not be so because Mr Beach had not been authorised to copy correspondence to Mr Abrahams, who as I have explained was Mr Dawson's selling agent and not in any sense the claimant's agent. However, I accept the submission made by Mr Hale that HOC has proved that the admitted breaches of confidence played no material part in occasioning the loss applying the principles summarised in paragraph 38(iii) above. I reach those conclusions for the reasons summarized by Mr Hale in paragraph 9.4 9.7 of his written closing submissions and because, as Mr Marshall accepts in paragraph 88 of his written closing submissions, Mr Abrahams was alive to the gift issue prior to 16 October 2012 the date when the letter of that date was copied by Mr Beach to him. Mr A'Court's evidence as to what he did with the letter of 16 October that is relied on by Mr Hale and summarised by him in paragraph 9.6 of his closing submissions is evidence that I unhesitatingly accept. I was satisfied that Mr A'Court was an honest witness and in any event this part of his evidence was evidence that was against his interest. It follows that this allegation is immaterial to the contract and tort claims because it lacks any causal potency.
The Claim against ACC
- ACC failed to discharge the burden resting on them to establish that they acted reasonably in the circumstances and thus they are not entitled to the benefit of s.61 of the Trustee Act 1925. I reach that conclusion for the following reasons.
- Reg.5(c) of the MLR imposed on ACC the obligation of "obtaining information on the purpose and intended nature of the business relationship". Contrary to what Mr Flenley submits in paragraph 32 of his written closing submissions, that is not an enquiry that is limited in every case concerning the sale of a residential property to establishing that the purpose of the relationship between the solicitor and apparent vendor "
was to sell a house
". Such a construction would deprive Reg. 5(c) of most of its substance at any rate in the context of a transaction concerning the purchase or sale of property. Further, that such an approach is mistaken is apparent from the parts of the Note quoted above. Paragraph 3.1.1, says of Reg.5(c) that it "
means more than just finding out that they want to sell a property
" Thus whilst the literal wording of Reg.5(c) may be capable of carrying the limited meaning for which Mr Flenley contends, it is clear that at any rate in relation to conveyancing transactions being handled by solicitors for vendors that is not its purpose, or the limit, of what is required.
- What is reasonably required of solicitors in such circumstances is what is set out in the Note that is that the solicitor concerned is required to look at all of the information available and assess whether it is consistent with the transaction that the client wishes to carry out being a lawful one. That much is obvious from ss.327-329 and s.340 of POCA. As the Note makes clear, that exercise "
may include considering whether the client is actually the owner of the property they want to sell". As I have explained already, that will not be necessary or appropriate in every case in which a solicitor is retained to act for the vendor of residential property. In each case a judgment will be required based on the risk posed by the transaction in question. That is the effect of the part of the Handbook set out above, which emphasises the need for a risk-based approach to be taken.
- In my judgment a reasonable solicitor in the position of Mr A'Court carrying out client due diligence as required by the MLR and adopting a risk-based approach ought clearly to have considered whether Mr Dawson was the owner of the property that he was attempting to sell in order to assess whether the transaction was a lawful one. The factors that were known or ought to have been known to Mr A'Court by the time he accepted instructions to act on behalf of Mr Dawson in the sale of the property to the claimant that together clearly indicated the need for such an approach include each of those identified in paragraph 19 above together with his knowledge by no later than 17 October that Mr Dawson was abroad and would not be returning to the UK before completion. In addition, he had no, and had not seen any, documents whatsoever relating to this property, save for the property information forms that had been completed by Mr Dawson and the Office Copy Entries that he had obtained. He had no knowledge of Mr Dawson other than that obtained following his original approach to ACC. Mr A'Court was aware that the address being used by Mr Dawson did not appear as an address for service on the Register and no explanation had been offered (or sought) as to why that was so.
- It was submitted on behalf of ACC that the duties imposed by the MLR did not form part of an obligation owed by ACC to the claimant. That may be so but misses the point. The obligation owed by ACC to the claimant was a strict obligation not to deal with trust assets in breach of trust. If liability for that breach is to be avoided it has to be shown by the trustee that any departure from best or reasonable practice on his part did not increase the risk of loss by fraud. Looked at in this way, in my judgment ACC failed to carry out its MLR obligations in accordance with reasonable practice in the circumstances and that failure increased (and had it been necessary to go this far, caused) the loss by fraud.
- It was submitted on behalf of ACC that there was no risk of money being laundered until the proceeds of sale had been received by ACC and that any funds coming to ACC would come from HOC, which would itself have carried out client due diligence. Again in my judgment these submissions miss the point. As to the first, it simply points to the latest time at which client due diligence needed to be carried out or the results considered. As to the second, the fact that HOC had carried out client due diligence in relation to the claimant is immaterial. This is so because ACC were under an obligation to carry out client due diligence in relation to their client and that obligation could not in any sense be qualified by reason of a belief that HOC had complied with their obligations in relation to the claimant. As the Note makes clear, one of the objectives of the checks in the context of a conveyancing transaction is to test whether the transaction that the client wishes to undertake is lawful. What is lawful for a purchaser may not be lawful for a vendor and vice versa. The MLR do not suggest some lesser standard should be applied by the vendor's solicitors and certainly the Note and the Handbook (which together amount to a statement of what constitutes good practice in relation to conveyancing transactions) do not suggest that the vendor's solicitor can safely or reasonably confine their enquiries on that basis. Mr A'Court judged Mr Dawson to be plausible but that is not a reasonable basis for not considering or undertaking the more extensive client due diligence referred to in paragraph 3.3.1 of the Note referred to in paragraphs 33 and 57 above where, as here, there were a number of factors that increased the risk of fraud. It was submitted that the claimant relied on breaches of regulations designed to protect against money laundering "
when money laundering was not the vice from which this transaction suffered". Assuming without deciding that such is or might arguably be the case, the point is irrelevant once the nature of the relevant causal test (summarised in paragraph 38(iii) above) is understood. Where, as I conclude was the case here, there was a departure from reasonable practice in relation to client due diligence as required by the MLR which increased the risk of loss by fraud the fact that the loss was not or may not be the result of money laundering as defined in POCA is not to the point.
- In light of the conclusions that I have reached so far, strictly it is not necessary for me to consider further Mr Marshall's alternative submission that Mr A'Court had failed in his duty to investigate the seller's title. However, I should make clear that I consider this alternative basis to be mistaken essentially for the reasons set out by Mr Flenley in paragraphs 22-24 of his written closing submissions. Chapter D2 of the Handbook, entitled "Investigation of Title", is concerned with both registered and unregistered land. Whilst the paragraph relied on by Mr Marshall (Paragraph 1.2.1) says that it is the seller's obligation to "
supply sufficient documentary evidence to the buyer to prove that the seller is the outright owner of the land he has contracted to sell
" this has to be read in context. In relation to registered land, the Register is conclusive as to the title of the registered proprietor. It follows that the seller's obligation will usually be satisfied by the supply of official copies of the title. No other obligation usually arises at any rate in the absence of further enquiries raised by the buyer's advisor. Even if Additional Enquiry 6(2) was a Requisition on Title as Mr Marshall submits, something I express no concluded view about, it had been answered. It is difficult to see how therefore it can be argued that Mr A'Court was in breach of his obligations as the vendor's solicitor at any rate in the absence of any further enquiries from HOC. Had this been the only point relied on by the claimant, I would have held that in the circumstances, Mr A'Court had conducted himself reasonably.
Contribution
- In light of the conclusions so far reached, it is necessary finally to consider the applications by each defendant for contribution from the other pursuant to s.1 of the Civil Liability (Contribution) Act 1978. Under that provision, any person liable in respect of any damage may claim a contribution from any other person liable in respect of the same damage. It is not in dispute in these proceedings that both defendants are liable in respect of the same damage, assuming both were refused relief under s.61 of the Trustee Act 1925. The amount of contribution is fixed by s.2(1) of the 1978 Act as being such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question. It is common ground between the parties that in assessing the level of contribution, the courts must have regard to considerations of relative causal potency as well as comparative blameworthiness see the principles summarised at Paragraph 17-034 of Chitty on Contracts, 32nd Ed., Vol.1.
- In my judgment applying the principles referred to in the previous paragraph it is clear that HOC and ACC that must each bear equal liability for the loss. I reach that conclusion for the following reasons.
- HOC were acting for the claimant. It was under a professional obligation to ensure that the claimant proceeded at all times on an informed basis. HOC had asked a question for the purpose of satisfying itself that Mr Dawson was entitled to sell the property. The answer that it received could not reasonably have satisfied HOC on that issue and the unsatisfactory nature of the response ought reasonably then to have been reported to the client in the terms set out earlier in this judgment. Given the speed with which Mr Dawson was insisting that the transaction proceed, and the exceptional arrangements that the claimant was having to make in order to finance the transaction, in my judgment it is more probable than not that the claimant would have either withdrawn from the transaction or perhaps more likely would have declined to proceed without further information being obtained by ACC from the vendor that demonstrated the relevant link. Such information ought to have been capable of being provided without either difficulty or delay if Mr Dawson was who he claimed to be.
- It was submitted by Mr Hale that the fact that the claimant did not read the replies to the additional enquiries when they were sent to him by Mr Beach suggests that the claimant would have ignored any advice that might have been given. I do not accept that the one follows from the other since HOC's obligation was to draw the problem created by the answers to the attention of the claimant. It did not do so. It was not suggested to the claimant that he would have proceeded with the transaction had he been advised about the effect of the answers and as I have explained in detail earlier, my assessment of the claimant is that he is not someone who would have taken a risk of that sort, particularly using his cash life savings and money borrowed from friends and relatives. My assessment is that at the very least he would have instructed HOC to seek further information from Mr Dawson via ACC. Had that occurred then the outcome is likely to have been as it was when Peacocks sought information about Mr Dawson's employer.
- By the same token ACC has significant responsibility for what occurred. It was the responsibility of ACC to carry out risk-based due diligence. The reality is that ACC made no serious attempt to do so. They knew that the property was unoccupied, knew that it was not subject to a charge, and knew that Mr Dawson had given an address that was not either the address for the property or the alternative service address that appeared in the proprietorship register for the property. Mr A'Court made no attempt to obtain an explanation as to why that was so and made no attempt whatsoever to obtain from Mr Dawson any documentation of any sort that established a link between that individual and the property. The reality is that Mr A'Court simply did not know of the terms of the rules and guidance to which he was subject. Had these enquiries been made as and when they should have been, it is unlikely the fraud would have occurred in the way it did as is demonstrated by the reaction of Mr Dawson to enquiries concerning his employment made by Peacocks.
- Having regard to relative causal potency as well as comparative blameworthiness by reference to the facts and matters referred above leads me to conclude that HOC and ACC must each bear equal responsibility for the loss.
Conclusions
- The claimant is entitled to succeed as against both defendants and as between the defendants each must bear an equal part of the loss.
