The claim in the case of Purrunsing v A’Court & Co (a firm) and another [2016] EWHC 789 (Ch) arose out of the purported sale to Mr Purrunsing of a property in Wimbledon, by a fraudster claiming to be “Mr Dawson”, the registered proprietor of the property. By the time the fraud was discovered, the whole of the purchase price of £470,000 had been paid by Mr Purrunsing to his solicitors, (HOC), which had been paid across to the solicitors acting for Mr Dawson, (AAC), which in turn had been paid to a bank account in Dubai on the instructions of Mr Dawson. None of the money paid by Mr Purrunsing was recovered.
Of particular note, was the fact that prior to completion, HOC made an additional enquiry of AAC asking him to confirm that he was familiar with Mr Dawson, to verify that he was the seller and to check the seller’s ID to support the same. AAC responded that prior to being approached to act on the sale he had no personal knowledge of Mr Dawson, but confirmed that he had met Mr Dawson, had seen his passport (although this later turned out to be fake) together with utility bills showing his UK address. The issue was that the property Mr Dawson provided documents for was different to the address of the property for sale, and the alternative address for service listed in the proprietorship register. HOC did not notify Mr Purrunsing of the ambiguous nature of the replies received.
It was accepted that there was never a genuine completion of the transaction. Accordingly, the monies paid by HOC and AAC to Mr Dawson’s order were made in breach of trust and both HOC and AAC were therefore liable to Mr Purrunsing for breach of trust. However, both HOC and AAC sought relief from the court under section 61 of the Trustee Act 1925 (The Act) which stated:
“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust,…but has acted honestly and reasonably and ought fairly to be excused for the breach of trust…then the court may relieve him either wholly or partly from personal liability for the same.”
Three issues to be determined at the trial were:
- Whether either defendant should be granted relief under section 61 of The Act;
- Whether HOC was liable for breach of contract or negligence;
- What contribution should each defendant be ordered to bear in respect of any liability.
The court held that both HOC and AAC were equally liable to Mr Purrunsing and were therefore under an immediate obligation to re-constitute the trust. The loss should be apportioned equally between the two defendants. The judge refused to grant relief under section 61 of The Act because, whilst it was accepted that neither defendant acted dishonestly in the transaction, he did not consider that either solicitor had acted as a reasonable solicitor would and had therefore not discharged their obligations in this regard.
The judge dismissed the argument put forward by AAC’s counsel that a more favourable reasonableness test should be applied to a vendor’s solicitor seeking to rely on s.61 of The Act. Whilst he accepted that a solicitor in a conveyancing transaction does not ordinarily owe a duty of care to the party on the other side of the transaction, he felt that AAC’s liability to Mr Purrunsing arose because they paid the purchase money to the fraudulent purchaser in breach of trust (since there was never any completion). The liability that arises from a breach of that obligation is strict because of equity’s high expectations of a trustee discharging fiduciary obligations.
The judge continued that the following issues when taken together should have alerted AAC to the fact that there was potential fraud:
- The property was unoccupied;
- The property was unencumbered;
- The property was of reasonably high value;
- Mr Dawson was pressing for completion within a very short timeframe;
- The Office Copy Entries for the property contained an alternative address for service;
- Mr Dawson had not provided any information linking him to the property;
- There was an unexplained inconsistency between the information supplied by Mr Dawson and queries about building work raised by a previous purchaser’s solicitor;
- Mr Dawson had not told his solicitor that he was employed abroad;
- Mr Dawson ended the sale to a previous purchaser because he had been asked to supply documentary evidence of his employer in Abu Dhabi.
Furthermore, the court concluded that AAC had failed to carry out money laundering obligations or identity checks in accordance with reasonable practice and that failure increased the loss by fraud.
In relation to the claim against HOC, the judge found that HOC had failed to warn Mr Purrunsing of the unsatisfactory response received to his additional enquiries. He had failed to provide information that Mr Purrunsing required in order to make an informed decision about whether to go ahead with the purchase. Mr Purrunsing was therefore exposed to a risk that he was unaware he was running. As a result, HOC had not acted reasonably and could not rely on section 61 of The Act. In addition, due to the facts established above, he found that the claim for damages for breach of contract and negligence would have succeeded against HOC.
Comment
This case serves as a useful reminder to practitioners of the need to constantly be on the alert to money laundering scams and of the increasingly sophisticated methods that fraudsters will adopt. It highlights that practitioners need to follow up any concerns they have about the identity of a client. In this respect the judgment provides a helpful outline of some of the indicators of fraud that practitioners should be aware of. It also provides a helpful summary of the principles relevant to an application for relief under section 61 of the Trustee Act.
Whilst the judgment does not place any additional burdens on conveyancing solicitors, it does confirm that a seller’s solicitor holds any purchase monies received on trust, and will be held accountable as such in the event that they do not discharge their fiduciary obligations.
