MacDonald v Myerson & Ors

Illegality does not bar recovery of property rights already acquired under a completed unlawful transaction, provided the claimant need not rely on the illegality to establish the right. A solicitor who receives sale proceeds for a client must account for them, even where the client acquired the property through mortgage fraud and used forged powers of attorney. The court may determine ownership by applying ordinary proprietary principles to completed transfers and proceeds held in the solicitor’s client account. Questions of civil confiscation are for Parliament. In the absence of a confiscation order, the solicitor cannot retain a fund representing the proceeds merely because the claimant’s criminal conduct produced it.

The claimant had pleaded guilty to mortgage fraud involving properties acquired and registered in false names. The defendant solicitors acted on the sales of two of those properties and credited the net proceeds to their client account, but the judge found that they had not accounted to the claimant. The solicitors appealed the order for an account, relying on illegality, including forged powers of attorney and a false statutory declaration used in completing the transactions.

The judge rejected the defence. The appeal concerned whether the claimant’s proprietary claim against his solicitors depended on reliance on those unlawful acts or on enforcement of an unlawful retainer.

1. Disposition. The appeal was dismissed with costs. The order for an account of the true proceeds of sale and related interest and profits remained in force.
2. Nature of the claim. The claimant’s primary claim was proprietary. The admitted or accepted facts were that the solicitors were retained by him, received the net proceeds into their client account and had not paid them to him, subject to proper deductions. He therefore did not need to claim performance of an express or implied term of an unlawful retainer, or to plead or prove the forged powers of attorney.
3. Completed transactions. The claimant could rely on the completed transfers of the houses and his resulting proprietary entitlement to the net proceeds. The reasoning in Halifax Building Society v Thomas supported the conclusion that the person who had acquired and sold the property was beneficially entitled to the surplus after discharge of the mortgages and proper costs. Section 105 of the Law of Property Act 1925 applied in Halifax because the sale was by mortgagees; it did not itself create the claimant’s title to the surplus.
4. Illegality. The majority principles in Tinsley v Milligan distinguish enforcement of executory provisions of an illegal transaction from enforcement of rights already acquired under its completed provisions. A claimant may enforce a proprietary right acquired under an unlawful transaction where proving the right does not require reliance on the illegality. The solicitors’ argument incorrectly treated the claim as enforcement of the unlawful retainer or as necessarily dependent on the forged instruments.
5. Civil confiscation. If the proceeds were to be confiscated, that was a matter for Parliament. The absence of an identifiable fund in the solicitors’ hands, despite the finding that the claimant had not been paid, did not provide a defence.
6. Alternative reasoning. Mance LJ agreed with the primary analysis and added that, if necessary, the claimant could succeed by proving ownership of the houses. Title could pass under an illegal contract and thereafter found a cause of action. Aldous LJ agreed with Charles J.

• Court of Appeal (Civil Division): Appeal from the Mayor’s and City of London County Court, where His Honour Judge Simpson ordered an account of the true net proceeds of sale of two properties and related interest and profits. The Court of Appeal dismissed the appeal with costs and ordered legal aid assessment of the claimant’s costs.