Analysis
The claimant (Nationwide) offered on 12 December 2008 to lend Mr Patel £187,500 to enable him to buy 61 Avery Road, West Midlands (the property) for £249,995. Both Nationwide and Mr Patel instructed the defendant (Davisons) as solicitor on the basis of the Council of Mortgage Lenders Handbook (CML Handbook).
Paragraph 10.3.4 of the CML Handbook required Davisons to hold the loan money on trust for Nationwide until completion. On 30 January 2009, Davisons were informed by a letter sent from the offices of Rothschild in Small Heath that Rothschild were acting as solicitors for the seller of the property, Mr Begum. Rothschild stated that they held a deposit of £62,995 paid to them by Mr Patel. In accordance with para A3.2 of the CML Handbook, Davisons checked the Law Society and the Solicitors Regulation Authority websites to establish that Rothschild existed and had a branch in Small Heath. Rothschild confirmed to Davisons on 24 February 2009 that they would discharge the existing mortgage on completion. On 5 March 2009 Davisons sent Rothschild a transfer form and asked for replies to requisitions. Nationwide released £185,620 to Davisons on 9 March 2009. Contracts were signed and exchanged on 12 March 2009. Nationwide’s charge was executed by Mr Patel and the purchase money remitted by Davisons to Rothschild. Mr Patel was registered as proprietor but the existing mortgage was not discharged and Nationwide’s charge was not registered.
Investigations showed that Rothschild operated only from premises in Birmingham and had never had an office in Small Heath. Rothschild had become aware that an imposter had notified the Law Society and the Solicitors Regulation Authority of an address in Small Heath in December 2008 and had promptly informed both bodies, who took no steps to remove the false address from their website until after the transaction concerning the property.
Nationwide commenced proceedings for breach of retainer and sought repayment of the money or equitable compensation for breach of trust, relying on para 10.3.4 of the CML Handbook. The trial judge gave judgment in favour of Nationwide on the basis that Davisons acted in breach of trust, ought not to be relieved of liability under s61 of the Trustee Act 1925, and were liable for breach of contract.
Davisons appealed. It was submitted that there had been no proper investigation by Nationwide of the fraud. There was no evidence that the transfer had not been executed by Mr Begum, there was no evidence from the principal of Rothschild, and there had been no investigation of the circumstances in which the Small Heath address appeared in the registers on the websites nor why it had not been removed. The enquiries made by Davisons in accordance with para A3.2 of the CML Handbook had conferred on them authority of Nationwide to pay the purchase money to Rothschild. There was no absolute obligation imposed by para 5.8 of the CML Handbook for Davisons to obtain an enforceable first legal charge over the property.
Held (allowing the appeal):
- (1) It is impossible to place the weight on para A3.2 of the CML Handbook that Davisons seek to place on it. The trust imposed on the loan money in Davisons hands by para 10.3.4 of the CML Handbook can only be discharged by completion of the purchase or the return of the money to Nationwide (para [40]).
- (2) Davisons obtained the benefit of an undertaking to redeem the prior charge from a person reasonably believed to be the seller’s solicitor. Section 61 of the Trustee Act 1925 only requires a trustee to have acted reasonably. It does not require that a person necessarily has complied with best practice in all respects. The requisite standard is reasonableness not perfection. Davisons acted both honestly and reasonably and there is no basis to deny relief under s61 (paras [46] [50]).
- (3) The effect of the absolute undertaking for which Nationwide contended would be to impose on Davisons the equivalent of a guarantee that all existing charges would be redeemed and Nationwide would obtain an enforceable charge. If that was the intention of the parties, then almost the entirety of the rest of the CML Handbook would be redundant. The obligation in para 5.8 of the CML Handbook goes no further than to exercise reasonable skill and care in seeking to procure that outcome (para [57]).
Continue reading "Davisons Solicitors v Nationwide Building Society [2012] EWCA Civ 1626"