Solicitors Professional Negligence – A number of recent cases have addressed the extent to which lenders can rely on breach of trust in professional negligence claims against solicitors.  Two notable 2012 decisions were Nationwide Building Society -v- Davisons Solicitors and Santander UK Plc -v- R A Legal Solicitors which both took a similar approach regarding whether the conduct of the completing solicitor amounted to a breach of trust.

Both cases related to the advance of funds by the lender to a completing solicitor.  In Davisons the solicitor released the funds to the vendor’s firm of solicitors who, it transpired, did not actually exist.  In the R A Legal case the purchaser’s solicitor (R A Legal) released funds to the vendor’s firm solicitor who acted fraudulently as, despite appearances, it did not actually act on behalf of the Vendor. 

Both completing solicitors were thought to have been acting in breach of trust in that, for different reasons, they released the mortgage funds to complete in circumstances where everything (they thought) was ‘above board’.  The release of the funds in these circumstances however amounted to a breach of trust – the question for the court was whether they could have any valid defence to the breaches of trust?

In Davisons the solicitor had undertaken some Law Society checks to confirm the existence of the vendor’s solicitor’s branch and the Law Society website showed that the branch did exist.  The court held that, although there had been a breach of trust, that  Davisons had acted reasonably.  It was accepted that Davisons honestly believed that they had received a sufficient undertaking from the vendor’s solicitors.  The court granted relief to Davisons under section 61 of the Trustee Act 1925* on the basis that they had acted both honestly and reasonably and therefore ought to be permitted to have a defence to the breach of trust.

Finally, the Court of Appeal importantly discussed what might be thought of as a strict obligation imposed in the CML Handbook on the part of the completing solicitor to redeem all existing charges and obtain a first legal charge on completion.  It appears that a solicitor is in compliance if he exercises reasonable skill and care which results in a less than literal interpretation of the CML obligations.

Similarly, R A Legal were held by the court to have acted in breach of trust but again they were granted relief under section 61 of the Trustee Act as the Court found that they had acted reasonably.

These are important decisions for solicitors in the defence of lender claims.  It appears that solicitors will have a defence if they act honestly and reasonably.

The result of these cases is that where lenders seek to attach liability to the completing solicitor where the completion has not taken place the lender will have to take into account the solicitor’s conduct and whether there is any possible defence for having acted honestly and reasonably.  Whether a solicitor has, in fact, acted honestly and reasonably will depend on the facts of each case.   It appears that in order to act honestly and reasonably a solicitor does not necessarily have to have acted in accordance with  best practice in all respects. It seems that there may well be more development in this area.  Lenders will have to assess all information surrounding the solicitor’s conduct in advance of the proceedings.

If you require any further advice or assistance in respect of professional negligence against solicitors please do not hesitate to contact our professional negligence team.

* In Northern Ireland the relevant legislation is section 61 Trustee Act (Northern Ireland) 1958

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