Addleshaw Goddard

Court of Appeal gets tough on solicitors acting for lenders — 28 February 2014

It is common in mortgage fraud for lenders to lose advances where their solicitors are innocently duped by fraudsters. It is often the solicitors’ mandatory professional indemnity insurance that provides the most likely source of recovery for lenders.

The solicitors may not have been negligent, but the Court of Appeal has said this week (Santander UK PLC v RA Legal Solicitors) that even where solicitors’ unreasonable conduct does not directly cause the loss, they may not be relieved from liability as trustees of the lender’s advance.

In two decisions in 2012, the Court of Appeal had held that where funds are released without the lender’s solicitors obtaining a completed legal charge, and solicitors hold money on trust pending completion of the purchase, they will necessarily commit a breach of trust if they part with the advance otherwise than on completion (Davisons Solicitors v Nationwide BS; Lloyds TSB Bank Plc v Markandan & Uddin). However, the court has a discretion, under section 61 of the Trustee Act 1961, to relieve solicitors of liability for automatic breach of trust in relation to mortgage advances handed over in the course of a fraudulent transaction…

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