Money was advanced by the claimant lender to the defendant solicitors with respect to a purchase of a property in Barnet. The claimant sent the firm of solicitors a standard certificate of title. The relevant clause provided that “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.”
It appeared that the whole transaction was a fraud. The registered owners of the property had no knowledge of the transaction and the money disappeared. There was no allegation that the defendant was involved in the fraud.
The claimant lender brought a claim for breach of trust. Counsel for the lender argued that the solicitors did not have the authority to pay away the moneys except to achieve completion and completion was never achieved. The solicitors’ counsel argued, however, that the authority was to pay away in connection with the purchase of the property and this is what the defendant did.
The court came down in the middle. The authority entitled the defendant to pay away on receipt of the documents necessary to register title or if paying away before that stage, on receipt of a solicitor’s undertaking to provide such documents. Here the solicitors paid away the money without receiving the requisite documents and without a solicitor’s undertaking to provide such documents. As such, the solicitors were in breach of trust.
The solicitors then sought to rely on s61 of the Trustee Act 1925 which enables a trustee to claim relief for breach of trust if he has acted honestly and reasonably. The solicitors submitted that the circumstances of the loan were unusual and the loan was approved by the lender in haste. Even if that were the case, the court could not accept that the solicitors had acted reasonably having paid away the money to a firm of solicitors even though the necessary documentation had not been provided combined with the failure to investigate the firm of solicitors to whom they were sending the money.
The solicitors also attempted to argue that any loss or damage suffered by the claimant was caused or contributed to by the lender because of its own fault. As the Trustee Act did not provide for this, the court were not prepared to extend the law in this way.
This case is a good example of when a claim for breach of trust can be brought. By bringing such a claim, the lenders avoided having to show any negligence or fault by the solicitors and there was no issue of contributory negligence.
Lloyds TSB v Markandan & Uddin [2010] EWHC 2517