In the recent decision of Santander UK Plc v RA Legal Solicitors (a firm) [2013] EWHC 1380 (QB), the Court of Appeal of England and Wales considered the liability of solicitors who had released their client's funds in respect of a fraudulent mortgage transaction, without knowledge of the fraud.

The client bank, Santander UK Plc, had agreed to lend to its borrower to purchase a house. Santander released the funds to its lawyers, RA Legal, which then paid them out to the vendor's solicitors. However, as those solicitors were fraudulent, Santander never obtained its charge over the property.

RA Legal denied the claim of breach of trust by Santander and also argued that even if a breach had occurred, they were entitled to the protection of section 61 of the Trustee Act 1925, which protects trustees who have acted "honestly and reasonably, and ought fairly to be excused for the breach of trust".

The Court of Appeal found that RA Legal had acted in breach of trust. However, notwithstanding the breach of trust, RA Legal were entitled to the protection of section 61. This was for the following reasons:

  • There was no dispute that they had acted honestly and without knowledge of the fraud
  • They had also acted reasonably. Acting reasonably does not require compliance with best practice in all respects. The standard is reasonableness and not perfection. While criticisms could be made of RA Legal's conduct, none of those criticisms were connected with Santander's loss and nor did they amount to such a departure from ordinary and proper standards so as to deny RA Legal relief
  • It was fair to excuse RA Legal's breach of trust or to grant them relief from all liability for it. The law generally leans towards confining the responsibility of professional people to a duty to take reasonable care for their liability for breach of duty and does not readily impose on them responsibility for loss resulting from the fraud of others.

Section 61 is similar in nature to section 73 of New Zealand's own Trustee Act 1956 which grants the Court the power to relieve a trustee from personal liability for breach of trust where s/he has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for his/her failure to obtain directions from the Court. As such, the decision is likely to be as welcome to trustees in New Zealand as to their counterparts in England.