Monday 28 January 2013

Breach of trust claims against conveyancing solicitors : A moving target

In 2013 conveyancers are likely to witness the continuing trend for lenders to embrace breach of trust arguments rather than traditional negligence claims against conveyancing lawyers. Call me a ‘conspiracy theorist’ but I suspect that this approach has something to do with lenders’ fear of their previous risky lending practices coming back to the haunt them if the court finds contributory negligence.

As long as the bank can claim that the transaction has not completed there are significant advantages for a lender in seeking to reconstitute the trust fund rather than to bring a contractual or tortious claim for damages.

What can the solicitor do when faced with such a challenge? Section 61 enables the court to relieve the trustee, wholly or partly, from personal liability for a breach of trust if he or she “has acted honestly and reasonably, and ought fairly to be excused for the breach of trust.”  

For the conveyancer defending a lender claim is the relief available under section 61 was fast becoming mythical especially after the Uddin case. The tide has somewhat turned as a result of Nationwide v Davisons [2012], where the court made it clear that relief available under section 61 is a reality .

It is important to note that the Court of Appeal decision in the Davisons case does does not establish new breach of trust principles, the Court of Appeal decision reinforces the decision in Lloyds Bank v Markandan & Uddin [2012] that a solicitor will have committed a breach of trust in parting with loan money prior to completion of the purchase. The major relief for conveyancing lawyers though is notwithstanding the contractual term in the CML Handbook (para 5.8) that the solicitor will obtain a fully enforceable first legal charge on completion, the Court of Appeal decision confirms that solicitors do not warrant or guarantee this. They are only required to exercise reasonable skill and care to redeem all existing charges and obtain a fully enforceable first legal charge. This decision now brings back to sharper focus that question ‘what determines reasonableness’?

Whether a court will find that a solicitor has acted reasonably will still depend on the facts of each case. I would also posit that circumstances have already changed that mean that in a similar situation in the future the court may not necessarily find in favor of the conveyancer. Here are a few points to consider :

  • Since the Davisons case came to light the SRA have been fairly vocal about lawyers not relying on the SRA search tool to determine if a solicitor in legitimate. The Davisons case in and of itself has highlighted the need to be extra vigilant in this area.  
  • New search tools and software such as Lawyer Checker and COMPLETIONmonitor are becoming increasingly popular with conveyancers. There will be a tipping point whereby if you do not carry out additional checks as to the legitimacy of a law firm it will be very difficult to satisfy the reasonable test.
  • Nostradamus would not have a hard time predicting a specific Law Society Warning Card relating to dealing with rogue solicitors which indirectly will set the bar higher when it comes to the reasonable test. The cynic in me thinks that any such warning card is as much about deflecting liability off of the the ‘Find a Solicitor’ search tool rather than protecting lawyers.
  • Look out for lenders setting out levels of investigation they expect a lawyer to carry out as part of the CML Handbook provisions. If I was a betting man my money would be on Nationwide being the first to change their Part 2 requirements in this regard.

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