In Purrunsing v. A'Court & Co (a firm) and House Owners Conveyancers Limited (2016) EWHC 789 (Ch) Judge Pelling QC in the Chancery Division of the High Court held that both the buyer's and seller's conveyancing solicitors were jointly liable to the Claimant buyer for a breach of trust arising out of a property fraud, for which they were not entitled to relief under Section 61 Trustee Act 1925 (a statutory provision that enables the Court to relieve a trustee of liability in certain circumstances). This is an important decision because this is one of the few occasions where a seller's conveyancing solicitor, who does not usually owe any duty of care to a buyer, has been found to be liable to the buyer in circumstances where the seller's solicitors have not been dishonest.
Facts of the case
The Claimant buyer (Mr Purrunsing) purported to purchase a property from a seller who later turned out to be a fraudster and not the true owner of the property. By the time the fraud was discovered the buyer's money had been paid away to the fraudster.
The buyer brought a claim against both the seller's solicitors (A'Court & Co) and buyer's solicitors (House Owners Conveyancers Limited) for breach of trust. Both solicitors admitted breach of trust but claimed relief under Section 61. In addition the buyer brought a claim against his own solicitors for breach of contractual and tortious duty for failing to inform him that the seller's solicitors' response to an additional enquiry regarding the identity of the seller illustrated that there was a real risk in proceeding with the transaction because the seller's solicitors had no personal knowledge of the seller and could not (or had not) confirmed a link between the seller and the property being purchased. The buyer's solicitors denied liability in this regard.
The judgment focused on Section 61 Trustee Act 1925 which provides as follows:
"If it appears to the Court that a trustee, is or may be liable for any breach of trust,…but has acted honestly and reasonably and ought fairly to be excused for the breach of trust…then the Court may relieve him either wholly or partly from personal liability of the same."
Judge Pelling QC held that the seller's solicitors were not entitled to relief under Section 61. Whilst the solicitors were not found to be dishonest, the Judge did find that the solicitors had not acted reasonably because they failed to take a risk-based approach to client due diligence in accordance with reasonable practice and that failure caused the Claimant's loss. The Judge rejected the seller's solicitors' submission that it should be held to a lesser standard of reasonableness than the Claimant's solicitors and confirmed that a seller's solicitor is as much a trustee of the purchase monies while in its possession pending completion as the buyer's solicitor.
The Judge also held that the Claimant's solicitors had breached their contractual and tortious duty to the Claimant by failing to inform him of the Additional Enquiry and the risk in proceeding with the transaction. The Judge commented that there was not necessarily any duty on a buyer's solicitor to raise any enquiry regarding the identity of the seller (unless requested by his client) but if the solicitor does raise such an enquiry and acquires information that is of importance to his client then he has a duty to bring that information to the attention of his client. As to the breach of trust claim, the Judge declined to grant relief under Section 61. Whilst the Judge did not find that the Claimant's solicitors were dishonest, he did conclude that the solicitors had not acted reasonably by virtue of their breaches of contractual and tortious duty.
The Judge concluded that the seller's solicitors and the Claimant's solicitors were equally responsible for the Claimant's loss and therefore they were both found jointly liable to the Claimant.
This decision may cause some debate in the conveyancing world. In recent cases, particularly in the breach of warranty of authority claims, the Court has been reluctant, in the absence of dishonesty, to hold the conveyancer acting for a fraudster liable for losses ultimately caused by that fraudster (see Excel Securities Plc v. Masood and others (2010) Lloyd's Rep. PN Plus 7). The findings of this case represent an evolution in the Court's approach. Conveyancers are reminded of the importance of taking active steps to minimise the risk of fraud."