A new dawn or a false alarm?

The recent decision of Mr Justice Pelling in Purrunsing v A’Court & Co and House Owners Conveyancers Limited [2016] EWHC 789 (Ch), has generated much interest, and alarm,about the extent of a solicitor’s duty to the purchaser of the property.

Purrunsing is the first authority to address the vendor’s conveyancers’ liability, and to examine the court’s power to grant relief under s 61 of the Trustee Act 1925 (TA 1925) when the purchaser’s money is away in breach of trust (Steven O’Sullivan considers some of the more controversial aspects of the
judgment on p 8). Anthony Gold recovered the entire trust fund for the successful claimant from both the fraudster’s solicitors, A’Court, and the claimant’s own licensed conveyancers, House Owners Conveyancers Ltd (HOC). The court refused to relieve either of their strict
obligation to reconstitute the trust of the claimant’s money and found HOC negligent.
In October 2012 Mr Purrunsing paid over £470,000 to HOC to purchase a property at 35 Merton Hall Gardens. The money was held on a bare trust by both firms for the specific purpose of completion. A’Court’s client, Mr Dawson, a fraudster impersonating the real proprietor, could not validly transfer title to the property to Mr Purrunsing. Summary judgment was entered against A’Court in April 2014 for breach of trust. HOC admitted its breach in the face of the judgment. The 2014 judgment followed Lloyds Bank v Markandan & Uddin [2012] EWCA Civ 65, which establishes that a worthless forgery of a TR1 does not amount to completion. As a result, the purpose of the bare trusts failed, and both firms continued to owe trustee duties to Mr Purrunsing to reconstitute the trust fund of £470,000. A’Court and HOC applied under s 61 of TA 1925 for relief from the strict obligation to reconstitute the trust money. Section 61 provides that where a trustee has acted honestly and reasonably he may be relieved of his trustee obligations if the court considers that it would be fair in all the circumstances. A’Court and HOC contended that in fairness the loss should lie where it fell—upon Mr Purrunsing—but they first had to satisfy the court that their conduct was reasonable. There was no allegation of dishonesty. The crux of the test was whether A’Court and HOC departed from the standard of best practice, following Santander v RA Legal Solicitors [2014] EWCA Civ 183. William Flenley QC contended for A’Court that the equitable test of reasonableness should be applied more leniently because there was no contractual relationship between the Mr Purrunsing and A’Court. The court rejected his contention that the liability of a solicitor in equity should not exceed liability at common law. He distinguished the case from AIB Group v Mark Peder & Co Solicitors [2014] UKSC 58, where the trust was an intrinsic part of a commercial contract. Here, there was an absolute trust for no other purpose than completion, which carried with it high fiduciary obligations on the trustees.

MLR & Best Practice

A unique feature of the Purrunsing judgment is the interplay of the Money Laundering Regulations (MLR) and common law principles in the analysis of best practice. This is the only authority in the canon of fraud cases to apply the MLR framework as part of the reasonableness test. The court made it clear that failing to comply with MLR is a departure from best practice which will preclude relief: “In my judgment A’Court failed to carry out its MLR obligations in accordance with reasonable practice in the circumstances and that failure increased (and had it been necessary been necessary to go this far, caused) the loss by fraud.” The decision adds an important practical dimension to evaluating the reasonable conduct of regulated trustees.

A’Court’s principal failings were not obtaining any documentation from Mr Dawson linking him to the property, and failing to make any enquiries about the second address for the registered proprietor in Cambridge appearing on the OCE. A’Court failed to adopt a risk-based approach required by the MLR. Accordingly A’Court was denied relief.

Narrow case

What has surprised some commentators is the narrowness of the claimant’s case against HOC. HOC’s conduct centered on a very specific question it asked of A’Court: “Please confirm you are familiar with the sellers and will verify they are the sellers and check ID to support the same.” HOC stated that it could not advise Mr Purrunsing to proceed without full replies. The court held that HOC did not receive a satisfactory reply. HOC failed to appreciate the ambiguity of A’Court’s response; that they had seen his passport and had proof of “his UK address as notified to us”. The purpose of HOC’s question was to ensure A’Court had established a connection between Mr Dawson and the property, which HOC knew was highly important. The answer could not establish that link, but HOC failed to warn Mr Purrunsing who consequently carried a risk he was unaware of. Each case must be judged individually, but it seems to me that a specific question about the vendor’s identity is neither an obligation of the purchaser’s solicitor, nor a pre-requisite for a  successful breach of trust claim.

No new requirements

Conveyancers should not be alarmed; no new requirements have been imposed on them by this judgment. A’Court and HOC fell into the familiar traps of care subordinated to speed, the failure to properly analyse risk, and, in HOC’s case, failing to advise its client of responses to requisitions. HOC and A’Court were held jointly and severally liable to re-constitute the trust fund and interest was awarded to Mr Purrunsing at a rate of 2.5% above base rate.

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