Pulvers v Chan – recovery of moneys paid in breach of trust

[2007] EWHC 2406 (Ch)

Mills & Reeve acted for the two partner firm of solicitors, Pulvers, against whom more than 20 mortgage fraud claims have been made. They in turn claimed against Mary West, a conveyancer employed by them, John Sinclair, the person behind the frauds, and others implicated in them. Pulvers had been acting for both borrower and lender in the transactions, with Mary West preparing and signing most of the certificates of title provided to the lenders before the loan monies were paid into Pulvers’ account. In most of the cases, the lender eventually obtained a charge but the property charged was not the entirety of the property which it had been represented would be secured.

The judge found that that Mary West had known of the deception and that she had conspired with John Sinclair and the other defendants with an intent to injure the lenders. She was not liable as a recipient of trust moneys as she had not apparently received such moneys, but she was liable for dishonestly assisting a breach of trust. Where the lenders had paid money into Pulvers' client account, it had been held by the firm on trust for the relevant lender and it was vicariously liable to the lenders for the actions of Mary West even though she had been dishonest. Pulvers could claim equitable compensation from those defendants who had been knowing recipients of trust moneys paid in breach of trust. The various defendants were also liable in conspiracy to the lenders and for dishonestly assisting a breach of trust.

As for contribution between the various parties responsible for the frauds, the judge held that in respect of the lenders’ losses Pulvers were entitled to recover a contribution of 50% against the defendants other than Mary West and 100% against her. However, applying the principles in Dubai Aluminium Co Limited v Salaam, the court is entitled to have regard to the extent to which the parties to the fraud remain in possession of the proceeds of the fraud. The precise sums which can be recovered by Pulvers from each defendant are therefore left open, highlighting the difficulty faced by professional indemnity insurers looking to recover their losses in such cases.

Comment: this is a topic on many lips at the moment as anticipation of mortgage fraud claims mounts following the sub-prime crisis and the increasing number of repossessions. With fears that we may be going to re-live the rush of claims against professionals which followed the collapse of the property market in the late 1980s, this decision offers a good opportunity to refresh our memories about the principles which apply where solicitors facing mortgage fraud claims seek to recover their losses from the fraudulent parties. See the article by Jackie Lynch and Henrietta Gordon in Covernote Winter 2007 for discussion of measures being taken to tackle the increasing number of claims being made against solicitors and surveyors arising from mortgage fraud.