'Mercy Comes At A Price': Court Of Appeal Bucks Trend On Granting Relief From Liability For Breach Of Trust

The Court of Appeal has recently handed down its judgment in the case of Santander UK plc v R.A. Legal Solicitors (2014).

The court examined the threshold for breach of trust claims and the scope of its discretion to grant relief from liability to a trustee in breach, but who has acted honestly and reasonably, under s.61 of the Trustee Act 1925 ("s.61").

Background

In May 2009 Santander UK plc (formerly Abbey National) ("Abbey") agreed to lend GBP 150,000 for the purchase of a residential property. R.A. Legal were instructed to act for both the purchaser and Abbey in the transaction.

R.A. Legal were advised that Sovereign Chambers LLP ("Sovereign") were the vendor's solicitors. Having been put in funds by Abbey, R.A. Legal transferred the funds to Sovereign's client account on 28 July 2009 and were led to believe that the purchase completed the following day.

It transpired that Sovereign's purported conveyancer was a fraudster and no part of Abbey's or the purchaser's money was transferred to the owner of the property (who had not retained Sovereign nor agreed to sell the property to the purchaser). The money subsequently disappeared from Sovereign's account on 13 August 2009. A claim was brought against R.A. Legal for breach of trust because R.A. Legal released the funds to Sovereign without completion ever taking place.

First instance decision

The High Court concluded that R.A. Legal had acted in breach of trust in releasing Abbey's money to Sovereign without a valid completion taking place.

The judge also found that there had been certain deficiencies in R.A. Legal's work:

The Certificate of Title contained a deliberate misrepresentation that investigation of title had been concluded There was a failure to seek Abbey's instructions arising from a delay in completion However, the judge rejected a complaint that R.A. Legal had paid the funds to Sovereign in circumstances where they had failed to obtain written confirmation (by adoption of the Completion Code or in any other way) of Sovereign's obligation to hold the money to R.A. Legal's order pending exchange and completion, or to return it if this did not properly take place. He found that it was implicit that the money would be held by Sovereign in this way. The judge also declined to criticise R.A. Legal for releasing the funds to Sovereign against an undated legal charge, or for the firm's delay, after they had parted with the funds, in alerting Abbey to the issues which had arisen...