Florrie’s Law and Council major works charges

Many council leaseholders have found themselves faced with huge charges for major works to their building or estate. Charges of £30,000 to £50,000 or more are no uncommon. Many more will find themselves facing such charges in the future.

Council leaseholders thought there might be some relief from these huge demands when, in August 2014, the Government brought in regulations commonly known as ‘Florrie’s Law’ (Social landlords reduction of service charges: mandatory and discretionary directions 2014).

What the Directions appeared to promise is that when councils or housing associations carried out major works which were partly paid for by central government funds, then there would be a cap on the amount that could be charged to leaseholders over 5 years for those works. In London that cap is £15,000.

Sadly for leaseholders, Florrie’s Law, at least in London, only applied to one very specific set of Government funds – the 2013 funding round ‘Decent Homes Backlog’ funds. Councils could apply for that in 2014. Only 9 London councils did so:

  • Barking and Dagenham
  • Hackney
  • Haringey
  • Tower Hamlets
  • Camden
  • Lambeth
  • Kingston upon Thames
  • Southwark
  • Sutton

The amounts awarded varied, with Southwark getting the most at £53 million.

So ‘Florrie’s Law’ would not apply to any other London council than these 9.

But even then, any hopeful leaseholders could face a further disappointment. Because even when councils were carrying out major works at the same time as ‘decent homes’ (or ‘Warm Dry and Safe’) works, there was no requirement that the central ‘decent homes’ backlog funding was used for those works.

That is what some councils, including Southwark and Lambeth, have decided, it seems – that no central ‘decent homes’ funding would be spent by them on estates or buildings where there were substantial other works needing to be carried out at the same time as decent homes works.

Southwark claim that this was to make the decent homes funding cover more homes, but the effect is that the £15,000 cap does not apply to leaseholders in those buildings, so that the council can recover more of the cost of works from leaseholders. If this is a coincidence, it is one that works to Southwark’s benefit on recovering some of the costs of the large works programmes.

Lastly, the funds were received by councils for the year 2015/2016. It is likely that councils have largely now spent the funds.

For council leaseholders of the 9 councils, while it is always worth investigating if any of the ‘Decent Homes Backlog Funding’ was spent on major works, the likelihood is that ‘Florrie’s Law’ will not apply and there will be no cap on the very large major works charges.

It isn’t clear whether any London council leaseholders have had the benefit of the capped charges at all.

Leaseholders can still challenge major works charges in the First Tier Tribunal on the grounds that:

  • Works of the sort aren’t recoverable from leaseholders under the lease
  • The works weren’t reasonably required
  • The charges aren’t reasonable in amount for those works
  • The works haven’t been done to a reasonable standard for the cost
  • Neglect and lack of repair has affected the leaseholder’s property

Anthony Gold have brought successful challenges reducing major works charges for groups of council leaseholders and can advise and assist on applications to the Tribunal.

Giles Peaker appeared on BCC London news discussing Southwark’s major works charges and how the council avoided Florrie’s Law on 14 February 2017

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

Divorce and death the financial consequences

What happens if I die before my divorce is finalised?

Recently one of my clients asked me if they could leave their spouse the right to reside in their property until their divorce was finalised; is such a clause desirable or, feasible?

Answer: whilst it is possible to word a will clause that way the effect would not be as my client intended. If divorce proceedings are continuing but a decree absolute has not been pronounced the proceedings end immediately on death. This means that for inheritance purposes the marriage would still exist in law. Therefore, in the example given above the husband would have a right to live in the property indefinitely, probably for the duration of his life. This would not have been what my client wished. A way round this might be to give the spouse a reasonable period to reside in the property following the death of the first party.

It should be noted that the divorce proceedings come to an end on death, even in cases where the decree nisi has been pronounced. Legally you are not divorced until decree absolute. In practice many divorcing couples agree, on their lawyers’ advice, not to apply for the absolute until financial remedy proceedings are resolved between them.

What does this mean in practice? The surviving party to the marriage will be a widow or widower with all the usual entitlement to death benefits and pension rights. They will also be a spouse for the purposes of intestacy (if the deceased did not have a Will). The IHT exemption for gifts between husband and wives will also continue to apply.

What happens to divorce financial remedy proceedings if one party dies before they are resolved?

Technically the proceedings are stayed; effectively put on ice.    However, it might be possible for a claim to be made under the Inheritance Act see below.

A further point to note is that many people do not appreciate that divorce does not automatically terminate financial claims.  It is only when an order is made (whether by consent or not) where the parties claims for capital (and sometimes income) are terminated. Occasionally there are cases such as Wyatt v Vince [2016] EWHC1368 (FAM)  where there were no dismissal of claims in financial proceedings where one party might come back to court seeking a financial settlement many years after the divorce. In the Wyatt case Ms Wyatt applied for financial provision 19 years after her divorce. By that time Mr Vince had a fortunate of £57m. Ms Wyatt was granted permission to appeal by the Supreme Court and in due course received a modest lump sum.

Expediting decree absolute

Normally the petitioner can apply for a decree nisi to be made absolute 6 weeks after the date of a decree nisi. In a case where someone is terminally ill they may wish to consider expediting the decree absolute, especially if they wish to remarry. This necessitates an application to the court and a short hearing.

Death after financial proceedings have been concluded

If financial proceedings have been concluded and the final decree has been pronounced, then any court order which has been made will still be enforceable by the deceased’s personal representatives (or administrators if no Will). Any spousal maintenance will be lost as this normally terminates on the death of the recipient. Child maintenance will continue. However, in many cases the children will move to live with their surviving parent.

If a generous court order has been made which, for example, allows the deceased to have retained a large portion of the family assets then it may be possible for the survivor to apply to set aside the order depending on their financial circumstances. Family lawyers regard deaths shortly after an order was made as a “Barder” event after the name of the case where such events occurred. In the Barder case (Barder v Calouri [1988] AC 20) the wife committed suicide and killed the children shortly after the order had been made. The husband applied for leave to appeal out of time. He was successful.

The Inheritance (Provision for Family and Dependants) Act 1975

This Act provides that certain applicants, who were dependent on the deceased, including a bereaved spouse (or former spouse) can apply under this Act. Moreover, if the death occurs within 12 months of the divorce the court can treat the parties as if they were still married. Such claims should be made promptly within 6 months of death or probate being granted.

In the case of Reid v Reid [2004] 1FLR736 a wife was awarded £99,000 on a clean break basis.  She had disclosed the fact that she suffered from ill health.  Just 15 days after the decree absolute was made she died.  The husband sought leave to appeal out of time.  The court held that her death two months after the order was a new event and attracted “Barder” principles.  The wife’s death was not reasonably foreseeable; the husband’s needs had not been fully met by the order and the wife’s death had invalidated the parties’ perceptions of her needs.  The husband would receive a lump sum of £37,000.

The executor’s arguments based on entitlement and contributions were not appropriate were assets were very limited.

However in the case of Amei v Amei [1992] 2FLR89 the parties had reached an agreement between them which they had intended to have approved by way of a consent order.  However before they could do so the wife died.  The husband sought to set aside the agreement.  It was held that the mere fact of the wife’s death was not sufficient; the agreement had been a fair distribution of assets on the basis of the wife’s entitlement.  The only basis for setting the agreement aside would be if death had undermined the fundamental assumptions on which the order was made.

In the case of Barber v Barber [1993] 1FLR476, CA an order was made for a wife to receive more than half the sale proceeds of the family home on the assumption that, although she was ill, she had at least 5 years to live.  She died just 3 months after the order was made.  The order was set aside in part on the ground that its fundamental basis had been invalidated.  It was held that the appropriate approach would be to start again and make an order on the basis of what the court would have done had it known, at the date of the order, what it now knew.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

Property Fraud Update – new decision just delivered

Dreamvar v Mischon De Reya & another [2016] EWHC 3316 (Ch)

The High Court has just handed down another judgment dealing with solicitors’ liability in the context of property fraud. Following Purrunsing v A’Court & Co and HOC, and P&P Property Ltd v Owen White & Catlin LLP last year, Dreamvar v Mischon De Reya is another case in which the claimant sought financial redress from the professionals as a result of suffering a fraud. Dreamvar paid over money to purchase a property. The individual purporting to be the seller was a fraudster with no right to transfer the legal title. Thus Dreamvar lost almost £1.1m.

Dreamvar sued its solicitors, Mischon De Reya (MdR) in negligence. Dreamvar alleged that MdR should have alerted it to a risk of fraud (of which it was unaware), and secondly, should have sought an undertaking from the seller’s solicitors, Mary Mondon Solicitors Ltd (MMS) that it had established the seller’s identity.

The claim against MdR in negligence failed. Mr Railton QC gave judgment.

The Court accepted MdR’s case that there was nothing unusual in the transaction which could have put MdR on enquiry about risk of fraud. Further, the Court accepted MdR’s case that it was entitled to assume that MMS had made standard due diligence enquiries of its client and to have proceeded on that basis.

The Court did not need to make a finding on causation but commented anyway. The findings are highly fact sensitive and depend on the evidence of the solicitor at MdR and Dreamvar’s director. The Court found that if MdR had perceived a risk of fraud, the likelihood was that the solicitor would have advised Dreamvar not to proceed. The solicitor’s evidence, which the Court accepted, was that other proposed steps to establish identity were not viable. The Court concluded that Dreamvar would have accepted MdR’s advice and would have aborted the transaction.

As a consequence of this finding, it might be arguable that the reasonable thing for a buyer’s solicitor to do, where there is a perceived risk of fraud, is to positively advise their client against proceeding.

The Court also had to determine a breach of trust claim against MdR by Dreamvar. The Court referred to established authority Target Holdings v Redfern, (also relied on in Purrunsing), to establish that MdR held the money paid to its client account by Dreamvar on trust for the purpose of completion. Completion having not occurred as a result the fraud, MdR were in breach of trust in paying the purchase money to MMS. The Court held it was an implied term of the retainer between Dreamvar and MdR that the purchase money was only to be paid out for the purpose of valid completion. MdR sought relief from its strict duty to reconstitute the trust under section 61 of the Trustee Act 1925.

There was no question that MdR had acted honestly. The issue for the court in connection with s.61 was whether its conduct was reasonable, and if so, whether in fairness it ought to be excused from liability. The Court found that MdR had acted reasonably, but that, in fairness, MdR ought not to be relieved. Mr Railton QC reasoned that MdR had professional indemnity insurance to cover the loss, whereas Dreamvar’s loss was uninsured, thus making it unfair for MdR to be relieved.

In the circumstances, the Court ordered MdR to reconstitute the trust fund of the purchase money, plus interest awarded at 4.5%.

Leave to appeal was granted.

In my next blog I will discuss Dreamvar’s case against MMS, which was unsuccessful.

Beth Holden acted for the successful claimant in Purrunsing, where the claimant succeeded in both his claims against his solicitors in negligence and breach of trust.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

‘I thought someone had died intestate, but now we have found a will – what can I do?’

It can be difficult to find someone’s will after they have died – particularly where they have left their things in a mess, or not told anyone whether they have a will or not and there is no obvious place to look.  We do not have a system for compulsory registration of wills.  What happens then, if someone takes out a Grant on the basis that the deceased died intestate, but a will is later found? It might substantially change the way in which the estate should be distributed.

The first thing for the executors to do is to check, as far as possible, that the will is valid.  There might be clues on it about solicitors used by the deceased (who might still have a file).  There will probably be a date, so close friends and relatives can be asked whether or not the deceased was likely to have had capacity at the time.

If someone other than the executors are acting as personal representatives for the estate, then they need to be informed quickly that there is a potential will so that they do not distribute the estate (if they have not done it already in which case, the beneficiaries might need to be contacted).  Assuming the will is valid, they will need to revoke their Grant so that the executors can obtain a Grant of Probate and administer the estate according to the will.

This situation arose in the case of Morris v Browne (2017) where the Defendants had obtained a Grant of Letters of Administration on the basis of their statement that the deceased had died intestate.  In that case, the Judge found that in fact the Defendants were aware at the time of taking the Grant, that there was a strong chance that there was actually a will (based on a contemporaneous letter from one of them and an allegation that one had seen the will at the deceased’s funeral).  The Court was troubled that the Defendants had been willing to swear that the Deceased died intestate in the circumstances, and (wisely) the Defendants did not oppose the application for their Grant to be revoked.

The Court also made an application for an account and for the Defendants to pay the Claimant’s costs on the indemnity basis.  This was because there appears to have been maladministration of the estate – the Claimant was the primary beneficiary under the will but was also a beneficiary under the intestacy.  The Deceased’s house had been sold for £920,000 but the Claimant had received nothing, and there was no explanation as to why not.  The Judge ordered that the Defendants give a full account of what had happened to the proceeds of the estate, and that they pay all of the Claimant’s costs.

The full text of the judgment is not yet available, so it is not clear why the Claimant had not taken steps sooner to admit the will to probate (especially if the will was available at the time of the Deceased’s funeral which was in 2012), but that does not excuse the conduct of the Defendants.  If a will is found, it is important to act quickly to inform the PRs so that distribution does not take place give that the wishes of the deceased as set out in their will might be very different to the provisions under the intestacy rules.  For anyone taking out a Grant where there is an intestacy, it is important to check as thoroughly as possible that there is no will.  The oath for administrators requires PRs to swear that the person died intestate, and the responsibility of signing that should not be taken lightly.

For advice on any aspect of a dispute over an estate, please do not hesitate to contact our contentious probate team.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

The meaning and impact of “lifestyle choice” on claims by adult children

I recently blogged about the case of Ilott v Mitson, to be heard by the Supreme Court in mid-December. As I said then, the judgment in this case is much awaited, because it is expected that the judges will provide some guidance and clarity on how to approach claims for maintenance by adult children of the deceased.   One of the questions which the practitioners are expecting the court to answer is: to what extent a “lifestyle choice” made by the child should impact on the provision to be made for them.

In the case of Ilott v Mitson, Ms Ilott chose a husband her mother did not approve of.  She chose to have 5 children.  She also chose to live in a remote location, despite not being able to drive.  Her choices directly contributed to her financial predicaments and led to her estrangement from her mother.  Despite that, the Court of Appeal held that the “lifestyle choices” made by Ms Ilott should not deprive her of an award.

The decision recently reached by the court in the case of Ames v Jones, another claim by an adult child, may have therefore come as a surprise.

Facts of Ames v Jones

Ms Ames is in her early 40s.  She has two teenage daughters.  She is not working and is totally financially dependent on her partner.  In their evidence they said they find it impossible to make ends meet each month.

Ms Ames made a claim for a provision to be made to her out of the estate of her deceased father.  He died leaving a Will in which he left his entire estate to his second wife.  The deceased married his second wife not long before his death, but the couple was together for over 30 years.  The widow is now in her 60s and in poor health.  Contrary to reports made by the press, the net value of the estate is under a million.  Its main asset is the matrimonial home in which the deceased and his wife lived and which the widow continues to occupy.

The decision in Ames v Jones

The first instance judge rejected Ms Ames’ claim.  Headlines such as  “a daughter refused a slice of her father’s fortune” appeared in nearly all national newspapers throughout September and October of this year.

In reaching his decision the judge took into account the fact that whilst the value of the estate may seem large, the capital is locked in a house which the widow needs.  The judge commented that it would be unreasonable to expect an ill lady in her 60s, whose income is just about sufficient, to borrow against her home which is also a source of her income.

The judge’s decision was heavily influenced by the poor quality of evidence as to Ms Ames need and his opinion of Ms Ames as an unreliable witness.  He was unable to conclude if Ms Ames and her partner were able to make ends meet or not.  However, what sparked most discussion is the conclusion that whilst Ms Ames was not working, she was able to work and it was her “lifestyle choice” not to do so.  The judge said that this in itself, was sufficient to defeat her claim.

Conclusions

Some say that the fact that in Ms Ames’ case the “lifestyle choice” had the potential of totally defeating her claim is at odds with the decision in Ms Ilott’s case.  I do not necessarily agree with that.   The two cases are different and each was decided on its own facts.  However, especially now, given the publicity and comments which the Ames case received, it will be very interesting to see what guidance, if any, the Supreme Court gives on the issue of “lifestyle choice” in its judgment following the hearing of the Ilott case this December.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

Japanese knotweed has spread from my neighbour’s garden to mine, what can I do?

If your neighbour fails to treat a Japanese knotweed infestation in their garden and the Japanese knotweed starts growing in your garden, you may have a claim against your neighbour for any damage to your property caused.

What is Japanese Knotweed?

Japanese knotweed is an invasive non-native plant.  It spreads very easily and is an extremely strong plant that can cause structural damage to buildings.

Is it illegal to have Japanese knotweed growing in my garden?

No.  However, it is unlawful to allow the knotweed to spread into the wild and you can face legal action if it spreads onto any neighbouring property.

How do I treat Japanese knotweed growing in my garden?

Japanese knotweed cannot simply be dug up and thrown away.  If you do this, it will simply grow back.  It usually has to be chemically treated and properly disposed of.

The Environment Agency provides advice about how to deal with a Japanese Knotweed infestation which can be seen here.

Generally, you are best to instruct a company specialising in Japanese knotweed removal.  Such companies are able to complete eradication programmes, which last several years, and then provide a guarantee upon completion of the treatment programme.

How do I make a claim against my neighbour?

If your neighbour has allowed knotweed to spread into your garden, you should tell them about this. If they do not agree to arrange for a treatment programme to be carried out, you may be able to bring a claim in nuisance against them.

If you bring claim in nuisance, you can obtain an order making them carry out a treatment programme.  You can also ask for compensation for any damage to your property, including damage to your garden.

In a recent case, I managed to get my client’s neighbour to agree to do the following:

  • Complete a 5-year eradication programme
  • Provide a 10-year guarantee upon completion of that programme
  • Pay my client £8,000 in compensation for the damage to her garden
  • Pay my client’s legal costs.
* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

What to do if a co-owner loses mental capacity

Many properties are held jointly.  Often two people are registered at the Land Registry as the legal owners.  That does not necessarily mean that they are each entitled to half the benefit of the property.  As a legal owner the person is a trustee, with responsibilities to hold the property for those who are entitled to its benefit – the beneficiaries.  That said, normally the registered owners are both trustees and the beneficiaries.

If one of the registered owners becomes unable to sign the transfer form, the property cannot be sold, as both trustees should sign the transfer form. Most properties are held informally and so there is no trust deed that gives the remaining trustee the power to remove the disabled trustee and appoint a new trustee.  As such a replacement trustee should be appointed under section 36 of the Trustee Act.

As the usual situation is that both registered owners have some entitlement to the property, it is often the case that a new trustee cannot be appointed without an application to the Court of Protection.

Before the Court of Protection can allow a new trustee to be appointed, it will need evidence that the disabled person is incapable of acting.  Obtaining that evidence can be difficult, owing to confidentiality issues or their medical condition not being clear.  In applications where the issues are not presented clearly to the Court, the process can become protracted and expensive.  It is therefore best to make sure before making an application that all the proper evidence is submitted and if possible agreed.

If there is insufficient evidence as to person’s medical condition, it may then be necessary to take an application to a different court under section 41 of the Trustee Act.  This involves a different and more complex process requiring different evidence.

If you require a brief discussion as to your options, please contact our Court of Protection team 0207 940 4000.

Breach of trust: Know your limits

In Court of Appeal in CREGGY v (1) JEFFREY BARNETT (2) PETER BARNETT [2016] EWCA Civ 1004 exams issues around the operation of the Limitation Act 1980 in breach of trust claims.

The case reminds us that not all breach of trust claims avoid the 6 year limitation period and that the nature of the loss sought could be determinative.

In 2012 two brothers called Barnett started proceedings against a solicitor called Mr Creggy for breach of trust in relation to the sum of 1.2million US dollars which Mr Creggy had paid out to a third party in 1998 from a Swiss bank account. The bank account was in the name of two off-shore companies owned by the brothers. Mr Creggy was a signatory on the account and had the power to control the disbursements.

The brothers alleged that Mr Creggy was a trustee of the funds in the bank and sought an account of his use of the money. Their argument was rejected by the first instance Court, and not challenged. The Court held that Mr Creggy was not a trustee and therefore was not liable to give an account. However, it was held that Mr Craggy did owe fiduciary duties in relation to the exercise of his powers as an account signatory. Accordingly, the definition in section 68(17) of the Trustee Act 1925 applied to him as an implied or constructive trustee. In turn, Mr Creggy could look to section 21 of the Limitation Act 1980 to offer him a defence against the finding that he had misapplied 1.2 million dollars in 1998.

Exceptions to the 6 year limitation period for breach of trust claims by beneficiaries under section 21(1) apply if the trustee has:-

(a) Committed fraud in relation to the trust property, or

(b) Retained trust property or applied it for his own use or benefit.

If the trustee has simply paid out money to the wrong person, the 6-year limitation bites. Mr Creggy argued that the brothers’ claims were statute barred as they could not rely on the exceptions. However, the brothers relied on a provision in section 29(5) of the Limitation Act which states that, in relation to a debt or liquidated claim, where the liability for the claim is acknowledged by the defendant, time to bring the claim starts to run from the date of the acknowledgment.

In this case, Mr Creggy had written to one of the brothers in 2012 acknowledging the liability to pay a “debt”, which was said to start time running in respect of that brother’s claim, thereby extending the limitation period. The brother’s argument succeeded at first instance but was overturned by the Court of Appeal who found that his claim was statute barred.

The Court of Appeal (Patten LJ dissenting) found that where trust monies had been improperly paid away by a trustee, the situation was similar to a claim at common law for a fixed sum of money, even though it may not be possible to precisely quantify the loss to the beneficiary. This means that the expression “liquidated pecuniary claim” within s.29(5)(a) of the 1980 Act covers a claim for recovery of trust money wrongly paid away by a trustee.

Accordingly, trustees who have wrongly misapplied trust money can remain liable outside the 6 year limitation period in section 20 of the Act if they acknowledge the debt in accordance with section 9(5) of the Limitation Act.

In this case, Mr Craggy’s appeal was allowed, despite the Court finding that the 6-year limitation period could be extended. The problem for the brothers was that they could not rely on section 29(5) as they were not the beneficiaries of the money misapplied by Mr Craggy. The money belonged to their companies, not them as individuals. The Court at first instance found that, despite the brothers being the beneficial owners of the companies which had no debt, the argument that the companies were pure nominees for the brothers achieves nothing beyond the “simple cloak of deception”.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

Latest property fraud decision

Mr Justice Dicker QC, sitting as a High Court Judge, delivered judgment in case that will join the canon of recent authorities on solicitors’ negligence and liability in property fraud cases.

On the heels of the Purrunsing decision handed down by HHJ Pelling in April this year, the case of P&P Property Ltd v (1) Owen White & Catlin LLP (2) Crownvernt Ltd t/a Winkworth [2016] EWHC 2276 (Ch) examines the seller’s solicitors’ warranty of authority, negligence, and breach of trust in the conveyancing transaction, but with a different outcome.

In P&P the Claimant was duped out of more than £1 million by a fraudster, calling himself “Mr Harper”, who impersonated the real owner of the property. P&P Property sued the fraudster’s solicitors, and the estate agent, for loss of the purchase money, and money spent on work to the property before the fraud was discovered.

The Court rejected P&P Property’s claim that the seller’s solicitors, Owen White, gave an implied warranty of authority that it acted for the true Mr Harper, and consequently did not impose on them strict liability for P&P’s loss.

To understand the decision, it is necessary to look at the line of authorities on breach of warranty of authority that were referred to. The unique challenge for the Judge in P&P was reconciling the authorities with the facts. None of the earlier authorities dealt with a fraudster impersonating the right of an individual to sell a property. P&P might be received as clarification of the law on implied warranties in this scenario, though perhaps an appeal will follow.

The starting point in P&P was Penn v Bristol & West Building Society [1997] 1 WLR 1356, which was a case involving a mortgage fraud by a husband, unbeknownst to his wife. It was held that the solicitor had warranted to the lender that he had the authority of both Mr and Mrs Penn, although in fact he was not authorised by Mrs Penn at all. As a result, the solicitor was liable to the mortgagee for giving a warranty which was incorrect. The position was reinforced in Bristol & West v Fancy Jackson, another mortgage fraud case, involving forgery of a wife’s signature on the mortgage deed. In Fancy Jackson the solicitors acted for both the lender and borrower (unlike Penn), but it was held that this made no difference to the solicitor’s warranty to the lender that it had the wife’s authority.

There was a move away from the strict liability cases following Platform Funding v Bank of Scotland [2008] EWCA Civ 1016 where the Court sought to curtail the professional’s liability by highlighting the need to identify special facts or clear language to impose strict liability where the usual obligation would not be strict but reasonable care. The principle took root in Excel Securities v Masood [2010] Lloyds’ Rep PN 165 where the Court held that, in another instance of mortgage fraud, the solicitors had done no more than warrant that they had the authority to act on behalf of a person calling himself Mr Goulding claiming to be the owner of the property. In Cheshire Mortgage Corporation v Grandison [2012] CSIH 66 the approach in Excel was endorsed and the Court addressed the need to consider the attributes of any warranty in determining its scope.

In P&P the Judge addressed the difficulty of marrying up Penn and Excel, saying that if the solicitors in Excel had been instructed by a fraudster who falsely claimed that he had the authority of a company, the outcome would probably have been the same as in Penn. Similarly, he asked whether the result would have been different in Penn, if the forged signature of Mrs Penn, had not been done by Mr Penn, but by someone who had impersonated Mrs Penn. There was no answer to this, which reveals judicial reservations about the correct approach.

Turning to P&P, the Judge began with examining the central justification for the doctrine of warranty of authority. The doctrine operates as redress against an unauthorised agent where there is no claim against the principal. P&P Property would still have a claim against the fraudster, though the Judge identified that the claim would serve no benefit because the fraudster was in Dubai and had made off with the funds. However, the Judge contrasted the position of P&P, where there is a claim against the principal, to a case where the doctrine could be “justified”. The Judge hints at his unease with the operation of the doctrine in this context, though this will be no comfort to victims of property fraud.

The Court held that the question of whether a warranty has been given can be approached in two ways. Firstly, by identifying who the agent represented that they had authority to act for, and secondly identifying what attributes, if any, the solicitor represented that such a person had.   P&P Property placed reliance on the seller’s solicitor, Ms Lim, having signed the contract for sale on behalf of the fraudster. It argued that this should be construed as Ms Lim warranting that she had authority to act on behalf of the true owner. Counsel for Owen White argued that the Excel approach should be adopted, so that the contract be interpreted as identifying only the person who called himself Mr Harper and claimed to have a right to sell the property.

The Judge found force in P&P Property’s argument that the Seller’s Solicitor had warrantied that they acted for the true owner, and appeared to teeter on the edge of pushing the boundary of Excel. However, he pulled back, saying that it would be wrong to construe the contract in this way because it would be going beyond the basic representation, and would wrongly impose the obligation to perform the contract on the solicitor. The fact of a solicitor having signed a contract on behalf of a fraudster is therefore not sufficient for a claimant to get home on establishing an implied warranty of authority.

The Judge ultimately determines (as in Excel) that if the scope of the warranty had been expressly raised at the time of the transaction, Ms Lim and her counter party would not have understood her to have been warranting that she had the authority of the true Mr Harper. That supposition as to what was intended, defeated the claim based on warranty of authority.

The result will surely be a relief for conveyancers, however, as the decision is difficult to marry up to previous decisions, it may well not be followed going forward. Leave to appeal was granted, hence long overdue clarification in this area may well be forthcoming.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

Inheritance tax and joint bank accounts

The taxation of money in joint bank accounts is dependent on who owns it. It is not uncommon for joint bank accounts to be set up just for convenience when an elderly person is struggling to manage their affairs.  In these circumstances, the money will be treated and taxed as if belonging to the person who paid the money in.

H.M. Revenue & Customs (HMRC) will normally treat accounts, where the person who paid in the money is able to draw out the whole account, as the paying party’s money.  As such all of that money will be taxable on death as set out in section 5(2) of the Inheritance Tax Act 1984 (IHTA 1984).

There is a subtle difference between the above scenario and the case where an account is set up as a joint account and hence the account passes to the surviving account holder on death.  Some banks will pay out the whole account to the surviving party. In these circumstances inheritance tax (IHT) is payable by the person who receives the money, rather than by the executors, unless the Will provides otherwise. Whilst HMRC may go against the executors if the money is not paid, they will first pursue the joint account holder.

There may be problems if it is intended that only part or half the monies in the account pass over to the non-paying account holder on setting up of the account.  People may wish to have this result, if they are to take advantage of the IHT potentially exempt transfer rules, which after seven years mean that IHT is not payable.

However, the HMRC are reluctant to accept that the gift was made unconditionally before death. Often, as in the case of Matthews v HMRC [2012] UKFTT668, HMRC will not accept that part of an account was transferred and hence is not liable to IHT.  In that case, the court held that section 5(2) of the IHTA 1984 applied because Mrs Matthews remained free to withdraw any of the monies. She had a reservation of benefit in all the monies hence the whole sum was liable to IHT. You cannot have your cake and avoid tax on it.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*