Lloyds TSB Bank Plc v Markandan & Uddin (A Firm)

A solicitor receiving mortgage advance money holds it on trust for the lender until conventional completion. Completion requires performance of a genuine contract through the exchange of the purchase money for genuine documents capable of enabling registration. It does not mean subsequent registration at HM Land Registry.

Payment to fraudsters under a transaction that is legally a nullity is therefore unauthorised and constitutes a breach of trust. Neither purported undertakings given without authority nor an exchange of money for forged documents amounts to completion. The possibility that a different fraudulent method might have caused the same loss does not defeat the lender’s entitlement arising from the breach that actually occurred. Relief for an honest solicitor from the resulting personal liability depends on the statutory discretion under section 61 of the Trustee Act 1925, including whether the solicitor acted reasonably.

A mortgage lender advanced £742,500 to solicitors for the proposed purchase of registered land and the grant of a first legal charge. The supposed vendors’ solicitors were fraudsters impersonating a genuine firm. The solicitors paid them the advance but received no executed transfer, discharge or effective undertaking. The owners had never agreed to sell, and the lender obtained no charge.

On preliminary issues, a deputy High Court judge held in [2010] EWHC 2517 (Ch) that the solicitors had paid the money in breach of trust, were not entitled to relief under section 61 of the Trustee Act 1925, and were liable for £742,500 with interest. The solicitors appealed only against the findings of breach and causation. The central questions were whether the fraudulent events amounted to completion for the purposes of their authority to release the money, and whether the breach caused the lender’s loss.

1. The appeal was dismissed unanimously. The mortgage advance was held on bare trust for the lender until completion. The solicitors were authorised to release it only for the purpose of completing the purchase. Target Holdings Ltd v Redferns (a Firm) and Another [1996] 1 AC 421 confirmed that money held by a solicitor in a client account in these circumstances is trust money.

2. “Completion” in the lender’s instructions bore its conventional conveyancing meaning. It referred to the exchange of the balance of the purchase money for possession and the documents required to implement the transaction. It did not refer to the later registration of the transfer and charge. Section 27 of the Land Registration Act 2002 provides that a transfer and legal charge do not operate at law until registration, but the conveyancing documents, the lender’s handbook and the certificate of title consistently distinguished completion from registration.

3. Completion must involve a genuine contract and an exchange of real money for genuine documents capable of enabling registration. The purported contract was a nullity because the owners had neither agreed nor authorised anyone to sell. An exchange of money for forged documents would not have amounted to completion. Nor did payment in return for supposed solicitors’ undertakings amount to completion, because the fraudsters lacked actual, apparent or ostensible authority to bind the genuine firm.

4. The events were therefore a legal nullity. As no completion occurred, the solicitors had no authority to release the advance and did so in breach of trust. Their innocent belief that they were completing a genuine transaction did not convert a purported completion into completion.

5. Section 61 of the Trustee Act 1925 supplies the answer to possible unfairness where an honest solicitor is deceived. A careful solicitor who acts honestly and reasonably may receive discretionary relief. The unappealed finding here was that the solicitors had not acted reasonably, principally because they failed to verify the supposed branch office and later released the returned money despite knowing that the earlier undertakings had been broken.

6. The equitable “but for” principle stated in Target Holdings did not assist the solicitors. A speculative possibility that a different purported completion involving forged documents might have caused no loss, or a smaller loss, did not answer the lender’s claim for full restitution arising from the breach that actually occurred.

1. Court of Appeal (Civil Division): The solicitors’ appeal was dismissed unanimously. The findings of breach of trust, causation and liability for the advance were upheld: [2012] EWCA Civ 65.

2. High Court, Chancery Division: A deputy High Court judge decided the preliminary issues in the lender’s favour. He found a breach of trust, refused relief under section 61 of the Trustee Act 1925, rejected contributory fault as a defence and entered judgment for £742,500 with compound interest: [2010] EWHC 2517 (Ch).