Santander UK Plc v RA Legal Solicitors (a firm)

A solicitor holding mortgage-advance money on trust must retain it until genuine completion or return it as directed by the lender. Releasing the money against forged documents, when the supposed completion is a nullity, is an unauthorised disposition and a breach of trust. Honest and reasonable conduct may justify relief under section 61 of the Trustee Act 1925. Reasonableness is judged by the statutory standard, not perfection. Where loss results from an independent fraud and the solicitor’s shortcomings neither caused nor materially contributed to it, full relief may fairly be granted.

The claimant lender advanced £150,000 to fund a proposed purchase and mortgage. The defendant solicitors acted for both purchaser and lender under instructions incorporating the Council of Mortgage Lenders handbook. The advance was held on trust until completion. The defendant released the money when the purported seller’s solicitors used forged documents to complete the transaction. The lender obtained neither the property nor a first legal charge.

The lender claimed restitution for breach of trust and, alternatively, damages for breach of retainer and negligence. The central issues were whether the handling of the advance constituted a breach of trust, whether that breach caused compensatable loss, and whether relief should be granted under section 61 of the Trustee Act 1925.

1. Breach of trust. The £150,000 advance was held on trust for the lender until completion. The purported exchange and completion supported by forged documents was a nullity. Releasing the funds on 29 July 2009 was therefore an unauthorised payment and a breach of trust. The decision was placed on that release; the court did not decide whether the earlier transfer on 28 July was itself a breach.
2. Delayed completion. The solicitors should have contacted the lender when completion was delayed. The instructions contemplated that the lender might authorise retention of the advance and did not require automatic repayment without instructions. The omission was at most a breach of retainer. It was not shown to be a breach of trust and had no causative effect.
3. Section 61 relief. Section 61 requires honesty, reasonableness and a conclusion that the trustee ought fairly to be excused. The defendant acted honestly and reasonably. The statutory standard is reasonableness, not perfection. Unconnected criticisms may remain relevant to fairness, but they did not preclude relief here.
4. Outcome. The loss was caused by an independent fraud, not by the defendant’s actionable shortcomings. The defendant was relieved from all liability for the breach of trust. The alternative damages claims were dismissed.