Landmark case re defines s.61 Trustee Act conveyancer responsibilities.

The Court of Appeal in Santander UK v R A Legal Solicitors supports lenders high expectations of conveyancers.

Santander UK Plc advised by Matthew Arnold & Baldwin and Thomas Grant QC from Maitland Chambers have successfully appealed, an earlier Judgment of the High Court. This ruling has turned on its head a trend of judgments finding in favour of insurers, this time supporting the claims of the lender.

The implications for residential conveyancers are significant. The case revolves around a residential conveyancing transaction funded by a Santander mortgage where RA Legal acted for Santander. RA Legal transferred funds to the vendor’s solicitors, but were defrauded because the vendor conveyancer did not represent the actual property owner.

The initial High Court judgment found that RA Legal had acted in breach of trust, but it relieved them from liability for this under section 61 of the Trustee Act 1925 by determining that they had acted reasonably. This was a disappointing result for Santander.

On appeal, Santander successfully argued that RA Legal had acted in breach of trust on the day it released the purchase funds to Sovereign Solicitors a firm of solicitors which was not in fact acting for the owner and intending seller of the property in question. After a very careful analysis, the Court of Appeal refused to grant RA Legal relief from liability for its breach of trust, deciding that in such circumstances the discretionary element afforded to the Court under Section 61 does not arise.

The judgment of the Court of Appeal will undoubtedly be gratefully received by lenders. The judgment represents a promising development by providing further clarity in respect of an area of law that has been the subject of three recent Court of Appeal decisions (Markandan, Davisons, and Redler).

Previously where a conveyancer has sent purchase funds to the vendor conveyancer and has been defrauded courts have looked to s.61 of the Trustee Act for relief. S.61 enables the court to exonerate the conveyancer if they have behaved both honestly and reasonably with the onus on the conveyancer to demonstrate that they have met these thresholds.

This case effectively states that the burden of proving the conveyancer acted “reasonably” is on the defendant and it should take into account all elements of reasonableness in its broadest term not just whether the loss would have not occurred “but for” the conveyancing failures.

Steven Baker from Matthew Arnold & Baldwin, comments:

“The decision to appeal the first instance judgment was taken with confidence that the Judge had erred in law in respect of his finding that the trustee had acted reasonably. We considered that the Judgment set a poor example to the entire residential conveyancing sector and sent out the wrong message to would-be fraudsters, which is not something that Santander was prepared to endorse”.

Tracey Carr from Santander, comments: “This judgment is important not only for Santander, but for the entire lending and conveyancing industries. After the disappointing initial ruling, we were determined to take the matter to the Court of Appeal. We are grateful to MAB for their support and advice on this matter, and for joining with us in our determined effort to ensure that the right outcome was achieved. Needless to say, we are delighted with this ruling”.

The practical implications of the Court of Appeal’s Judgment on the lending industry are significant and it will act as a welcome confidence booster.

Chris Harris of Lawyer Checker said “This case swings the pendulum back against’ the conveyancer requiring conveyancers to be able to demonstrate that at every stage they have acted reasonably. Checking the firm on the other side must be part of demonstrating that you have acted reasonably.”

It will also encourage the residential conveyancing sector by its placing of a great deal of importance on the maintenance of high standards within that sector – in particular, to prevent, as far as possible, fraudulent activity from taking place.

Rob Hailstone of the Bold Group commented saying: “This judgement appears to open up a whole new can of worms. The fact that RA Legal performed the conveyancing in a generally “shoddy” way was relevant, as was the fact that the Certificate of Title (CoT) was submitted when investigations were outstanding. How often do firms submit a CoT with matters outstanding because clients and agents are pushing for a quick completion date? Will that practice have to stop?”

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